30s Summary

Ether (ETH) saw an 8.8% increase mid-October but faced resistance at $2,650, sparking trader concerns as futures open interest reached an all-time high. This may indicate potential price corrections due to high demand for leveraged ETH. The futures market dictates price shifts based on leverage. Large forced liquidations can result in “cascading liquidations”, accelerating price movement. Similar conditions to August were observed, when $279 million in leveraged long positions were liquidated. The neutral market could see a 20-25% drop in ETH price, but if Bitcoin exceeds its $70,000 resistance, this might favour a bullish trend for ETH.

Full Article

Between Oct 14 and 15, Ether (ETH) saw an 8.8% rise, however, hitting a resistance level of $2,650 turned out to be quite a daunting task than originally envisioned. Many traders are getting worried as Ether’s aggregate futures open interest reached an all-time high on Oct 16, which could be a sign of a potential hitch.

Usually, when there’s a high demand for leveraged ETH positions, hefty price corrections follow. As of Oct 15, the overall Ether futures market surpassed 5 million ETH for the first time, which was 12% higher than four weeks ago.

To give you an example, on Aug 2, when Ether’s aggregate open interest was at its highest, ETH’s price dropped sharply by 31.7% in less than four days, going from $3,205 to $2,186. It’s a valid question whether we are about to witness a similar scenario.

Similarly, a high demand for ETH futures doesn’t necessarily mean a bearish trend. The important point here is whether there’s an overall increase or decrease in system-wide leverage. Bigger bets mean a greater likelihood for sudden price shifts due to forced liquidations.

Although futures markets seem like winner-takes-all affairs, their influence on actual prices is significant. Futures contracts tend to trade at much higher volumes due to leverage. Moreover, big players and market makers depend on derivatives for quick exposure hedging, something which would be close to impossible in the spot market due to lower liquidity.

Unfortunately, when forced liquidations of $50 million or beyond happen in futures markets, the overall price movement speeds up, be it up or down, causing what’s called “cascading liquidations”. This is exactly why traders closely monitor open interest to keep tabs on the risk of unexpected price changes due to excessive leverage.

Let’s take Aug 2 as another example, when open interest reached 4.75 million ETH, a 15% rise compared to four weeks earlier. The situation today is pretty similar to what it was in August, when a total of $279 million in leveraged long positions were forcefully liquidated.

When looking at the overall cryptocurrency market, it becomes even more complicated to analyze. If this market continues to stay neutral, Ether’s price could potentially drop by 20% to 25% to about $1,960. Traders should indeed brace themselves for such a possibility. However, if Bitcoin finally surpasses the $70,000 resistance level, higher leverage in Ether might favor a bullish trend, possibly leading to price increase.

Remember, this is not an investment advice, but more of an information for you to better understand the market trend.

Source: Cointelegraph