Ether price plunges 14% in hours, triggers liquidation of $100M ETH futures contracts
On January 3rd, the price of Ether (ETH) experienced a significant correction, dropping 14% in just a matter of hours. The price fell from $2,380 to $2,050, a level that hadn’t been seen since December 1, 2023. This sudden drop led to the liquidation of $100 million worth of ETH long future contracts, which were leveraged bets on the price increasing. This sharp decline has left traders wondering about its significance and whether it signals the end of the bullish momentum that had been building.
Traders uncertain if Ether’s correction marks end of bullish momentum
Following three unsuccessful attempts to break above $2,400 in the past month, traders are now questioning whether the recent price correction is a sign that the bullish momentum in Ether has come to an end. Interestingly, this is also the third time in the same period that the price of Ether has dropped below $2,150. With such volatility, it becomes difficult to argue that the bullish momentum is over. Traders are eagerly waiting to see if Ether can recover and break through the $2,400 resistance level.
Swift recovery suggests weakening of panic selling and derivatives liquidations
One interesting observation from the price chart is the swift recovery of Ether to $2,230 on January 3rd. This quick rebound suggests that whatever triggered the panic selling and subsequent liquidations of derivatives has weakened. Some have pointed to a market analysis that was released on the same day, indicating the denial of the spot Bitcoin ETF. However, it is important to note that market reactions may have been excessive, and it’s necessary to differentiate between market analysts’ opinions and actual news and events.
Market overbought: Excessive leverage makes Ether bulls an easy target
Attorney and commercial litigator Joe Carlasare believes that the recent sell-off in Bitcoin and Ether was not solely due to the report about ETF denial but rather because the market was overbought. Carlasare argues that buyers were using excessive leverage, making them an easy target for whales and market makers looking to create liquidity and initiate a long squeeze. This conclusion is supported by an analysis of the ETH monthly futures annualized premium, which indicates a growing demand for leveraged ETH long positions. Such positions can be costly for buyers to sustain in the long term.
Ether’s flash crash a result of overconfidence and excessive leverage, but market remains healthy
The flash crash that occurred on January 3rd, resulting in a 14% drop in the price of Ether, may have been triggered by overconfidence and excessive leverage in the market. This is evident from the surge in the futures contract premium, which reached 27% on January 2nd. However, this does not necessarily invalidate the overall bullish trend of Ether or suggest that it will be unable to break through the $2,400 resistance. Looking at the options market, there has consistently been more demand for call options than put options, indicating a reduced interest in protective strategies. While the flash crash highlights the risks associated with excessive leverage, the derivatives market suggests that the overall health of the Ether market remains intact.
In conclusion, the recent price correction in Ether has raised questions about the future direction of the cryptocurrency. While the flash crash was triggered by overconfidence and excessive leverage in the market, the swift recovery and the overall health of the derivatives market suggest that the bullish momentum may still be intact. Traders will continue to monitor Ether’s performance closely to see if it can break through the $2,400 resistance level and maintain its upward trajectory. As always, investors should conduct their own research and exercise caution when making investment decisions.
Analyst comment
Overall, the news about the Ether price plunging 14% in hours and triggering the liquidation of $100M ETH futures contracts can be seen as negative news. However, the swift recovery and the overall health of the derivatives market suggest that the market may still have bullish momentum. Traders will closely monitor Ether’s performance to see if it can break through the $2,400 resistance level. It’s important for investors to conduct their own research and exercise caution.
