Is SKY's 10% Surge a Bullish Breakout or a Bearish Trap? A Technical and Liquidity Analysis

The recent 10% surge in Sky Protocol’s (SKY) token price has ignited debate among investors: is this a sustainable bullish breakout or a precarious bearish trap? To answer this, one must dissect the interplay between technical divergence and liquidity risks, both of which reveal a market teetering on the edge of volatility.

Technical Divergence: A Warning of Fading Momentum

The technical indicators for SKY in September 2025 paint a mixed picture. While the price remains above critical support levels such as $0.0854, the Relative Strength Index (RSI) has entered overbought territory and exhibits bearish divergence. This means that while the price continues to rise, the RSI fails to confirm new highs, suggesting weakening momentum [1]. Similarly, the Moving Average Convergence Divergence (MACD) histogram has turned negative, signaling bearish momentum and a potential reversal in the short term [2].

This divergence is particularly concerning when viewed alongside SKY’s consolidation near its all-time high. Historically, such scenarios often precede corrections, as traders take profits or indicators lose their ability to sustain upward pressure. For instance, the RSI’s inability to confirm price action implies that the market may be overextended, with retail buyers potentially exhausted and institutional sellers poised to capitalize on the euphoria [2].

Liquidity Risks: Hidden Orders and Structural Vulnerabilities

Beyond technical indicators, liquidity risks further complicate the outlook. Order book depth analysis reveals the presence of iceberg orders—large trades hidden beneath small visible portions—which can distort price action and create false signals for retail traders [1]. In SKY’s case, such hidden liquidity could exacerbate volatility, particularly if institutional players exploit thin markets to execute large sell-offs without triggering immediate price drops.

Structural vulnerabilities in DeFi ecosystems also amplify these risks. Sky Protocol, despite its rebranding from MakerDAO, retains governance and capitalization weaknesses highlighted by S&P Global’s recent “B-” credit rating. The protocol’s risk-adjusted capital ratio of 0.4% and centralized governance structure—where co-founder Rune Christensen controls 9% of governance tokens—pose systemic risks, especially in a fast-moving market [3]. These factors, combined with a high concentration of depositors, increase the likelihood of liquidity runs during periods of stress.

The Bearish Trap or a False Dawn?

The interplay between technical and liquidity risks suggests a bearish trap is plausible. For example, while Sky Protocol’s $75 million buyback program has boosted SKY’s price by 8.1% over six months, recent spot market outflows—$1.67 million in sales over five consecutive days—contrast with robust derivatives activity (open interest of $2.33 million). This divergence indicates that while short-term buyers are active, long-term holders may be hedging their positions, anticipating a pullback [4].

Moreover, the consolidation near all-time highs and overbought indicators imply that a correction to the $0.0780 level is probable unless the price breaks decisively above $0.0962. However, the market’s ability to sustain momentum post-September 15 migration deadlines will be critical. If the forced migration from MKR to SKY and continued buybacks outweigh liquidity outflows, the uptrend could persist.

Conclusion: A Delicate Balance

SKY’s 10% surge reflects a tug-of-war between bullish fundamentals and bearish technical and liquidity risks. While the token’s rebranding and buyback efforts have injected optimism, the divergence in key indicators and structural vulnerabilities in its DeFi ecosystem suggest caution. Investors must remain vigilant, as the market’s next move could hinge on whether hidden liquidity is absorbed or exploited. In this high-stakes environment, the line between breakout and trap is perilously thin.

Source:
[1] Latest Sky (SKY) Price Analysis [https://coinmarketcap.com/cmc-ai/sky/price-analysis/]
[2] SKY Token Bullish Bias Faces Correction Risk Near All-Time High [https://fx-list.com/blog/analysis/sky-token-bullish-bias-faces-correction-risk-near-all-time-high]
[3] S&P Global gives Sky Protocol 'B-' credit rating, citing ... [https://www.coinglass.com/ru/news/529215]
[4] Buybacks Boost SKY, But Overbought Signs Spark Sell-Off ... [https://www.ainvest.com/news/buybacks-boost-sky-overbought-signs-spark-sell-fears-2509/]