A recent analysis conducted by a knowledgeable analyst from CryptoQuant has revealed a significant change in the market dynamics of Ethereum. This comes as a relief following Ethereum’s substantial drop of over 18% in the past week which marked its largest weekly decline since March. The drop was primarily driven by large spec prioritizing profit over potential losses after the Open Interest (OI) reduced from $13 billion $11.5 billion.
For those unfamiliar with OI, it is a metric that measures the total number of derivative contracts that have not been settled. An increase in OI indicates more money entering the market and raises hopes increased trading activity and subsequent volatility.
During the ongoing rollercoaster bull run of 2021, Ethereum’s OI fluct drastically, reaching an impressive peak alongside an all-time high price of $4,891 per asset. However, this price peak not revisited during the current bullish cycle. Nevertheless, OI skyrocketed to hit all-time high value of $13 billion.
The surge in OI indicated an overbought market that was vulnerable to selling pressure amidst a frenzy of leveraged long positions. As anticipated, this unprecedented level of OI led to heightened volatility. Starting from June 5th, 2024 when leverage in the market became excessive (Figure 1), Ethereum experienced a wave of liquidations.
Within just one week following this event, approximately $400 million worth Ethereum positions were liquidated. Long positions suffered losses amounting to around $285 million while shorts gained more than $113 million through settlements. rapid unwinding process for leveraged positions resulted in a decrease in OI exceeding $1.5 billion over the past week.
Despite this shakeout period, Ether is showing signs of resilience and hints at staging a comeback Over the past 24 hours alone, Ether has risen by 1.5%, sparking speculation about potential temporary consolidation.
In terms of prices, Ethereum found support at around $3,585 after establishing a base above both psychological and technical levels at $3,500 or higher prior to rebounding from there (Figure 2). This rebound is significant considering last week’s overall slide amounting to approximately 2.5%.
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