A recent analysis conducted by a seasoned analyst at CryptoQuant reveals that Ethereum has undergone significant shifts in its market dynamics during the recent trading sessions. This rally comes as a relief following Ethereum’s steep 18% decline last week, marking its largest weekly drop since March. The downturn was driven by major speculators prioritizing profits amidst a reduction in Open Interest (OI) from $13 billion to $11.5 billion.
For the uninitiated, Open Interest (OI) denotes the total number of derivative contracts that have not been settled. An increase suggests more capital flowing into the market, potentially boosting trading activity and volatility.
Historical Highs and Stabilization
During the tumultuous bull run of 2021, Ethereum’s OI surged from $9.5 billion to reach a peak alongside an all-time high price of $4,891 per unit. Although this price zenith hasn’t been revisited in the current bullish cycle, OI soared to an unprecedented $13 billion.
This surge marked an overbought market vulnerable to selling pressures during the leveraged longs’ accumulation frenzy. As anticipated, the aftermath of such record OI levels was marked by volatility, triggering a wave of liquidations (see Figure 1) from June 5, 2024, onwards due to excessive market leverage.
Within a week, approximately $400 million worth of Ethereum positions were liquidated. Long positions bore the brunt with losses exceeding $285 million, while shorts gained more than $113 million. This rapid unwinding of leveraged positions contributed to a significant OI decrease of over $1.5 billion over the past week.
Market Resilience and Future Prospects
Despite the shakeout, Ethereum shows signs of resilience and potential recovery. Over the last 24 hours, the cryptocurrency has seen a modest 1.5% increase, prompting speculation of a possible temporary consolidation phase.
Price-wise, Ethereum has been oscillating around $3,585, finding support above the psychological and technical level of $3,500. This rebound is noteworthy following a broader 2.5% decline observed last week.
Tags: ETH
