Ethereum Drops Nearly 5% As Familiar Leverage Setup Plays Out

Data shows the Ethereum Open Interest observed a sharp jump before the cryptocurrency’s price saw a decline of almost 5% over the past day.

Ethereum had managed to recover above $2,150, but following this decline, its price is back near $2,000.

In terms of the 24-hour percentage change, the ETH price has seen returns of nearly -5%, worse than Bitcoin’s 3% drop, but better than the losses that some of the altcoins have witnessed.

Derivatives markets data may have already foreshadowed this volatility.

When the value of the indicator rises, it means investors are opening up fresh positions related to the cryptocurrency. Generally, the total leverage in the market goes up when new positions appear, so an increase in the Open Interest can lead to more volatility for the asset’s price.

On the other hand, the metric going down implies investors are either closing positions of their own volition or getting forcibly liquidated by their platform. In either case, the market can become more stable due to the leverage washout.

Below is the chart for the 24-hour change in the Ethereum Open Interest that Maartunn had shared on Wednesday.

As displayed in the graph, the Ethereum Open Interest rose by 7.1% as the price surge occurred, implying that new positions appeared to ride the wave. In the chart, the analyst also highlighted past instances of the metric going up sharply. It would appear that many of these coincided with local tops in the asset. “This setup plays out ~75% of the time,” noted Maartunn.

From the heatmap, it’s apparent that Ethereum’s liquidations have been the largest in the cryptocurrency sector, with Bitcoin ranking second this time around with $83.8 million in contracts involved.