Ethereum price dip extends, liquidates $10 million in long positions as exchange outflows skyrocket

06.10.2023

Ethereum price has extended its losses by 2%, liquidating up to $10.06 million in long positions.
Santiment data shows ETH supply on exchanges has reduced by around 110,000 ETH in 24 hours, from 10.77M to 10.66M.
A break and close below $1,585 would spell doom for holders short-term, likely extending losses to $1,551, mid-August lows.

Ethereum (ETH) price continues on its load-shedding exercise for the fourth consecutive day, forming a dome-shape as it loses all the ground covered during the late September run, with on-chain data showing profit takers are showing no restraint.

Ethereum profit booking continues

Ethereum (ETH) price has extended the slump almost 2% in the last 24 hours, a factor that might look negligible but has seen upwards of $10 million in long positions liquidated.

ETH liquidations

Open interest and volume have dropped from $6.07 billion recorded on August 5 to the current reading of $5.28 billion. This represents a 15% drop in the total number of long and short positions and trading volume for the asset in two months.

ETH Open Interest

This points to significant capital flowing out of the ETH market, with lesser fresh contracts exchanging hands with the new Ethereum price move.

Open Interest, funding rate FAQs

How does Open Interest affect cryptocurrency prices?

Higher Open Interest is associated with higher liquidity and new capital inflow to the market. This is considered the equivalent of increase in efficiency and the ongoing trend continues. When Open Interest decreases, it is considered a sign of liquidation in the market, investors are leaving and the overall demand for an asset is on a decline, fueling a bearish sentiment among investors.

How does Funding rate affect cryptocurrency prices?

Funding fees bridge the difference between spot prices and prices of futures contracts of an asset by increasing liquidation risks faced by traders. A consistently high and positive funding rate implies there is a bullish sentiment among market participants and there is an expectation of a price hike. A consistently negative funding rate for an asset implies a bearish sentiment, indicating that traders expect the cryptocurrency’s price to fall and a bearish trend reversal is likely to occur.

Behavior analytics, Santiment data

Data from behavior analytics platform Santiment corroborates this trend, showing ETH supply on exchanges has reduced by around 110,000 ETH in 24 hours, moving from 10.77M to 10.66M. At current rates, this represents about $177.87 million.

ETH Supply on exchanges

Price implication, is the market strengthening?

At the time of writing, Ethereum is valued at $1,615; with the price action displaying a mirror image of the September 28 to October 1 rally. The position of the Relative Strength Index (RSI) below the midline suggests a continued downtrend, short term at least, confirmed by a break below the demand zone at $1,585. A decisive daily candlestick close below this level could send ETH the range low at $1,551.

ETH/USDT 1-day chart

Conversely, if the demand zone holds as a support floor between $1,603 and $1,569, Ethereum price could pivot around it to pull back north, reclaiming the $1,648 hurdle back to a support floor. In a highly bullish case, the gains could see ETH shatter the equal highs at $1,736.

Meanwhile, study shows that the market could be strengthening when price, volume, and open interest are all falling. With declining prices, volume and open interest, traders with long positions could be discouraged causing them to liquidate. As long as this trend continues, it is a bearish sign. Once open interest stabilizes at a low level, the liquidation is over and prices could then be in a position to rally again.