Is Stellar (XLM) Entering a Long-Term Downtrend Amid Shattered Open Interest and Institutional Selling?

Stellar (XLM) has faced a turbulent period in late 2025 and early 2026, marked by a sharp decline in open interest, mixed institutional activity, and a bearish trader sentiment environment. This analysis examines whether XLM is entering a long-term downtrend by dissecting technical and behavioral indicators, including open interest trends, institutional selling patterns, and on-chain dynamics.

Technical Analysis: Open Interest and Price Divergence

XLM's open interest (OI) has been a critical barometer of market structure. By early 2026, OI plummeted by 11.79% in a single 24-hour period, dropping to $142.74 million, following a recent price surge. This collapse in OI-despite a 26.66% increase in trading volume to $183.85 million in December 2025-suggests traders were reducing leverage as the price dipped, a classic sign of profit-taking or capitulation. The divergence between rising volume and falling OI indicates a weakening of bullish conviction, as traders close long positions rather than add to them.

Historically, XLM's OI peaked at over $300 million in October 2025, reflecting institutional confidence in its cross-border payment utility. However, the subsequent 47% annual decline in price and a 17% underperformance against Bitcoin over 90 days highlight structural bearishness. Technical indicators like the RSI (67.37 in early January 2026) and MACD histogram (0.0053) suggest short-term bullish momentum, but these are overshadowed by broader market conditions. For instance, Bitcoin's dominance increased by 0.74% in early January 2026, siphoning capital away from altcoins like XLM.

Behavioral Analysis: Fear, Greed, and Market Sentiment

Trader sentiment for XLM remains deeply bearish. The Fear and Greed Index for Stellar hovered between 42–48 during December 2025–January 2026, signaling "Extreme Fear" to "Neutral." This aligns with on-chain metrics: the 50-day and 200-day moving averages were below the current price, and most oscillator signals pointed to selling pressure. Low volatility (5.7–6.5% 30-day price variation) further underscores a risk-averse market.

However, late January 2026 saw a slight shift. The RSI moved into a neutral-to-bullish range, and analysts projected a potential rally to $0.28–$0.31 if the $0.22 support level held. This optimism was tempered by macroeconomic risks, including AI-driven equity market corrections and Federal Reserve rate cut expectations. The broader "Bitcoin Season" index of 25 also highlighted capital flight from altcoins, limiting XLM's upside potential.

Institutional Activity: Selling vs. Accumulation

Institutional selling of XLM was evident in late November 2025, when a 62% spike in trading volume coincided with a 2.2% price drop. Yet, by early December 2025, XLM's price rose 1.79% amid a 37% surge in volume above the 7-day average, suggesting possible accumulation. On-chain data revealed increased network activity, including a record high in operations and transactions, signaling improved liquidity and adoption.

A key catalyst for institutional interest is the upcoming State Street Galaxy Onchain Liquidity Sweep Fund, which plans to integrate Stellar into institutional cash management by early 2026. This could mitigate selling pressure by enhancing XLM's utility in institutional workflows. However, the lack of direct on-chain evidence for large whale transactions or fund outflows during December 2025–January 2026 leaves ambiguity about the scale of institutional selling.

Is a Long-Term Downtrend Imminent?

The evidence points to a fragile market structure for XLM. While technical indicators like RSI and MACD hint at short-term rebounds, the broader context-declining OI, bearish sentiment, and Bitcoin dominance-favors a continuation of the downtrend. Institutional selling in late 2025 and early 2026 has eroded confidence, though the State Street integration offers a potential inflection point.

For XLM to reverse its trajectory, it must:
1. Hold the $0.22 support level to trigger a 33–48% rebound to $0.28–$0.31.
2. Attract sustained institutional demand through cross-border payment partnerships and tokenization use cases.
3. Outperform Bitcoin in the short term to regain altcoin market share.

Failure to achieve these milestones could cement XLM's role as a long-term underperformer in a Bitcoin-dominated market.

Conclusion

Stellar (XLM) faces a critical juncture. Shattered open interest and institutional selling have created a bearish foundation, but technical and behavioral indicators suggest a potential rebound if key support levels hold. The coming months will test XLM's resilience, with institutional adoption and macroeconomic shifts serving as pivotal variables. Investors must weigh the risks of a prolonged downtrend against the possibility of a recovery driven by utility-driven demand and strategic partnerships.