Ethereum fell sharply during Monday’s thinly traded early European session, breaking below $ 1,000 from its three-month high of $ 1,168.99.
The second largest cryptocurrency fell briefly to USD 886 due to profit-taking from day traders. Meanwhile, the downward revision caused long liquidations worth nearly $ 330 million on all crypto derivatives exchanges. This could have resulted in overfunded traders selling their existing ETH holdings to cover their margin calls, creating further downward pressure on their value.
Ethereum logs an extreme wick on each side, reflecting an intraday bias conflict. Source: ETHUSD on TradingView.comEthereum logs an extreme wick on each side, reflecting an intraday bias conflict. Source: ETHUSD on TradingView.com
However, the price was able to stay in positive territory ahead of the US session. Ethereum’s correction to below $ 900 followed a strong uptrend towards $ 1,000, driven by moderate buying sentiment near the lower levels.
Technical setup of Ethereum
The $ 1,000 level later took on the role of a pivot. That is, if ETH / USD stays above the floor it is showing an upward trend over the day, but when the pair falls below it it is reflecting a bearish bias in the same short-term time frame.
Ethereum will continue to look up as long as it holds the red support area pro Rekt Capital. Source: ETHUSD on TradingView.comEthereum will keep looking up as long as it holds the red support area pro Rekt Capital. Source: ETHUSD on TradingView.com
Technically, Ethereum could revert to its 20-day moving average (the green wave near USD 730) and still maintain its bullish bias. This is due to the performance of the cryptocurrency during the year-end holiday shopping season – from $ 551 on December 23 to $ 1,168.99 on January 4 – which offers ample room to hit a short-term low and attract buyers again.
“The old resistance is a new support,” said a pseudonymous analyst on Monday, pointing to the range between $ 750 and $ 915. He noted that the range could become an ideal “dip buying area”.
The key question remains what prompts traders to buy Ethereum in the first place. The answer lies in the classic supply-demand economic model.
Ki-Young Ju, CEO of CryptoQuant, noted that people are actively withdrawing their ETH holdings from crypto exchanges across the board. That means that a majority of them have interests other than trading their Ethereum for other assets.
This could include staking, where crypto tokens are provided to ensure the liquidity of the decentralized financial protocols against returns. In the meantime, traders may hold ETH for the long term, reducing their active supply against increasing demand.
“It seems that the sell-side liquidity crisis hit ETH just like the BTC market,” Ju said. “For BTC, the reserves of all exchanges have decreased by 31% compared to February 2020. For ETH, the reserves of all stock exchanges have decreased by 20% compared to May 2020. “
Meanwhile, a higher short-term funding rate offsets Ethereum’s long-term bullish outlook. Data provided by Glassnode shows that the refinancing rate of Ethereum futures on all futures exchanges is around 0.2 percent. The average threshold is 0.01 percent.
# Funding rates for Ethereum are at a record high, breaking an average of 0.2% on the major exchanges. # BitMEX leads the way with a funding rate of over 0.4%.
Diagram 👉 https://t.co/Rh5p064hqF pic.twitter.com/Ra94iGxniL
– glassnode (@glassnode) January 4th, 2021
This increases the possibilities of longer liquidations, as the derivatives market remains largely optimistic despite short-term local correction risks.