Key Takeaways
- Ethereum short leverage hits a record high, sliding the altcoin crypto market lower.
- Over $551 million in 24-hour liquidations in the crypto market suggests overleveraged positions are flushing out.
- Rising DeFi growth over $160B could trigger a short squeeze, forcing shorts to cover.
The broader crypto market traded in red on the first day of the new trading week, with the top coins like Bitcoin dipping below $115,300 and Ethereum (ETH) struggling under $4,300 due to a rise in short leverage. After setting all-time highs just last week, this decline raises a question: Is this a healthy correction or the beginning of a serious decline in the crypto market?
Ethereum Short Leverage Reaches All-Time High
With total liquidations topping over $551.19 million in the past 24 hours, the leveraged short positions on Ethereum have reached an all-time high. This metric displays extreme bearish sentiment, likely the result of institutional hedging on CME futures of Ether (open interest of 6.91M ETH, ~$27B). Following the bearish sentiment, it has added to the recent ETH price declines to ~$4,340, triggering $144 million in long liquidations in 24 hours vs. $40M of short liquidations. This situation sets up a possible short squeeze if some of the other bullish sentiment factors (like ETF inflows of ~$2.3 billion and deflationary burns) manage to dominate, leading to price action to the upside.
Led by Ethereum’s $210 million in liquidations, it signals that overleveraged positions are being flushed out. Low-cap altcoins have been hit the hardest, and they further triggered the decline. DeFi’s total value locked jumped from $129 billion on Aug. 3 to nearly $160 billion on Thursday, driven by volatility in Ethereum shorts. The total long liquidations in the last 24 hours were $485.82 million, according to Coinglass data. A total of 130,900 traders were liquidated during the same period, and the total liquidation was $557.13 million. The largest single liquidation order was on Bitmex – XBTZ25 for a value of $7.83 million.
Market rally takes a pause: FOMO turns to fear.
Bitcoin’s all-time high of $124,457 on August 14 was driven by inflows to Bitcoin Spot ETF and ETH ETFs. On August 14, Bitcoin spot ETFs experienced their second-largest daily inflow for the month at $230.93M. Ethereum’s spot ETFs, on the other hand, remained stable close to $639.61 million the same day. The U.S. CPI data released the previous week showed it increased in July by 0.2% after a 0.3% increase in June as inflationary pressures began to ease. The FOMO (fear of missing out) was spreading, making the sentiment positive, and the overall sentiment for the crypto market started towards greed.
In the previous week, the total crypto market cap reached its all-time high milestone of $4.17 trillion. However, as the fresh trading week begins, the metric declined nearly 3% in the past 24 hours, losing about $140 billion to hover around $3.83 trillion. The market cap is down by 8.15% from its all-time high on Monday.
The recent sell-off in the crypto market has demonstrated that crypto’s volatility is here to stay. With leveraged shorts at record highs for leading coins like Ethereum and large liquidations throwing the market into a panic, traders are advised to be cautious.
