ETH Long-Term Liquidation Risk: The Only Reason You Should Not Buy Ethereum Today

NOIDA (CoinChapter.com) — Ethereum, like many cryptocurrencies, has experienced periods of significant volatility and rapid price changes, which have led to the following market phenomena:long squeeze,” Prolonged liquidations can lead to bearish market conditions.

Specifically, a long squeeze occurs when the price of an asset falls sharply, forcing traders with long positions to sell their positions to avoid further losses. The resulting selling pressure could lead to further declines in asset prices.

Ethereum long-term liquidation history

Ethereum’s long history of pressure can usually be seen during certain periods when the cryptocurrency market has faced high volatility and downward price pressure.

Ethereum’s history is characterized by rapid rises and sharp declines in value, but long squeezes are especially noticeable during bear market phases or when unexpected events lead to rapid selling.

Some key events include:

First, after hitting record highs in January 2018, Ethereum and the broader cryptocurrency market have faced a severe downturn. The crash resulted in greatly inflated asset prices across cryptocurrency markets following the massive bull market of 2017.

There was a significant long squeeze during this period as investors rushed to liquidate positions amid falling prices. Moreover, market sentiment shifted from extreme greed to fear, further intensifying the sell-off. Liquidation data for that period is not available, but the price of ETH fell nearly 50% during that period.

Second, the market crash occurred in March 2020 due to the COVID-19 pandemic. The pandemic has led to a sell-off in global markets, including cryptocurrencies.

The price of Ethereum plummeted along with the broader market, leading to a long squeeze as traders liquidated leveraged positions worth nearly 40 million ETH tokens when the value of each Ethereum was around $200.

Since then, Ethereum has seen a strong recovery in 2020 thanks to the rise of decentralized finance (DeFi). However, this period also saw significant volatility. Rapid price movements have led to long squeezes, the most significant one in August 2020, which resulted in a long liquidation of over 44 million ETH.

Additionally, throughout 2021, Ethereum experienced significant growth, reaching new all-time highs. However, this growth has not been corrected. In particular, long squeezes occurred during periods of sharp price declines during the year as the market corrected after reaching peak prices.

Third, the flash market crash on January 3, 2024 resulted in the liquidation of nearly $100 million worth of ETH buys in one day.

Therefore, there is a risk that the ongoing ETH rally could be reversed if the token’s price movement triggers a liquidation.

ETH whale market ends

Meanwhile, ETH whale addresses are plummeting, so market participants are likely to expect a price reversal soon.

Despite the recent rise in ETH price, Ethereum wallets holding between 1,000 and 10,000 ETH (blue wave) have plummeted. The number of wallets holding more than 10,000 ETH tokens (red wave) has recently seen a surge, but the increase in whale addresses may be due to institutional interest.

Retail investors are likely to follow suit, which could lead to a surge in selling pressure and lower prices. With ETH open interest approaching $11.4 billion, assuming even half of that is in long positions, this means Ethereum could see $5.5 billion worth of buy liquidation.

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