Do ETH Leveraged Long Position Liquidations Remove Its Upside Potential

Ethereum [ETH]The price action of may have generated a slight upside so far since the end of August. Its price action seems less excited than expected, especially now that the merger is less than two weeks away. Is it because of a lack of buying pressure or is there something more to this performance?

The secrets revealed

The dominant narrative for ETH over the past few weeks has been centered around the meltdown. As is often the case, a rally is expected in the weeks or days leading up to a major upgrade, and then investors sell the news. The merger is now less than two weeks away and the price of ETH has touched bearish territories.

One of the possible reasons for the subdued ETH price is the liquidation of leveraged long positions. It saw strong demand in August, especially in the first half of the month, before a significant pullback. ETH’s leverage ratio recorded a sharp rise in the first half of August, followed by a significant pullback. This confirms the use of leverage when the price started to recover.

Source: CryptoQuant

The next major increase in the leverage ratio occurred towards the end of the month, but it has since declined. A decline in Ethereum funding rates preceded each pullback in the leverage ratio. This result is consistent with the bearish days for ETH during the month.

ETH’s performance on August 19 was one of the best examples of a case where long leveraged sell-offs brought price action under control. The price had cooled after briefly entering overbought territory around mid-August and leveraged traders began to increase their positions.

Source: Glassnode

The market recorded its biggest long leveraged ETH selloffs on August 19, which created a strong wave of selling pressure. A similar incident occurred on August 26, where longs rose, followed by another major spike in long liquidations.

Traders traders on the alt

A notable observation is that there has been a diversion between ETH funding rates and the estimated leverage ratio. Likewise, the forward open interest and long-term liquidation indicators showed divergence.

Traders should therefore consider observing the aforementioned metrics to determine healthy entry or exit points. Other market forces also played a role in reducing ETH’s upside potential, but lengthy selloffs clearly played a role.

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