Something 'Scary' Happening on Ethereum (ETH)

Ethereum, the second largest cryptocurrency by market capitalization, is witnessing some intriguing and potentially alarming trends. While ETH long liquidations are growing in size, open interest in the cryptocurrency is simultaneously skyrocketing. This paradoxical situation demands a closer look.

Long liquidations and open interest: What's happening?

Long liquidations refer to the forced selling of assets, in this case, Ethereum, when traders cannot meet margin requirements for their leveraged positions. The fact that these liquidations are increasing suggests that many traders are getting caught on the wrong side of the trade, possibly due to sudden price drops.

On the other hand, open interest represents the total number of outstanding derivatives contracts, such as futures and options, that have not been settled. Skyrocketing open interest indicates that more traders are entering into contracts, betting on Ethereum's future price movements.

The simultaneous occurrence of increasing long liquidations and surging open interest is perplexing. It suggests that while many traders are being liquidated, even more are entering the market, possibly with leveraged positions. This scenario can lead to heightened volatility and risk in the Ethereum market.

Ethereum's price analysis

Over the past month, Ethereum's price has shown some fluctuations. Starting from July 1, 2023, ETH was trading at $1,934.04. As the month progressed, it reached a high of $1966.81 but also dipped to lows like $1,830.05. As of Aug. 13, 2023, Ethereum was trading at $1,836.95.

This price movement, combined with increasing long liquidations, suggests that traders might be over-leveraging their positions, expecting Ethereum to rise. When the price does not move as anticipated, or if there is a sudden drop, these over-leveraged positions get liquidated, leading to the observed increase in long liquidations.