How leveraged positions could have accelerated Ethereum’s downfall

Ethereum has returned to levels not seen since early 2021. The cryptocurrency registers a 50% correction in the weekly chart and has fallen from a record low to around $ 4,000. At the time of writing, ETH is trading at 1,927 with losses of 22.9% in the weekly chart.

ETH on a downtrend in the daily chart. Source: ETHUSD Tradingview

The fall in the price of ETH was preceded by one of its biggest entries on the exchange platforms. About 199,947 ETH or $ 445 million was deposited on all exchanges on Mach 23rd, as shown in the table below.

Source: Glassnode via Lex Moskovski

In the derivatives sector, around $ 809 million in long positions and $ 785 million in short positions for the BTC / USDT trading pair were recorded by the CryptoMeter monitor for Binance Futures in the past hour. The ETH / USDT pair had $ 394 million and $ 388 million during the same period.

The trading of derivatives has been crucial for the development of the current price action. FTX CEO Sam Bankman Fried shared data on the industry’s performance. Bankman said $ 20 billion in long positions were liquidated in the past week.

However, there is still $ 20 billion in open interest, which is the total amount of contracts traded in this sector. Bankman Friend believes the market is approaching the “end of term liquidations”. He added:

(…) It is very unlikely that a large part of the remaining OIs will be liquidated (liquidated). But, there are other types of liquidations (…). Then there are OTC loans. Are they called? I guess not: things are still going great this year, so most people are probably still in the green! And OTC borrowing / lending tends to occur over longer time frames.

Ethereum: the two sides of a coin

This could be a bullish indicator for Ethereum, Bitcoin, and the crypto market in the long run. Over-indebtedness positions have had a negative impact on the market for months. As Sam Trabucco, analyst at Alameda Research explained, ETH was no exception.

The main story of the ETH rally was the increase in institutional adoptions and retail investors, but like Trabucco Explain, the story did not correspond to reality:

I’ve seen a ton of speculation that rallies (especially ETH rallies) were low-leverage and spot-driven, and therefore ‘more organic’ in some way. other. An important implication of this is that in the event of a downturn there would be relatively few liquidations.

Aggregate Open Interest (OI) for Ethereum rose to a high level from mid-April to May 21, as seen in the chart below. However, the recent downtrend may have “reset” the market. Analyst Nick Cote claims that OI has fallen along with the crypto market and is less likely to be affected by leverage positions.

Source: Skew via Sam Trabucco

In the meantime, the price of ETH must be between $ 1,600 and $ 1,800 to push towards $ 2,100. If the price can recover this level, it might have a chance of a rebound in the short term. Otherwise, Ethereum could see more sideways moves in the coming weeks.

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