Ether, the native cryptocurrency of Ethereum, rose to $1,161 but immediately corrected thereafter.
The price of Ether (ETH),
the native cryptocurrency of the Ethereum blockchain, achieved $1,161
for the first time since January 2018. Immediately after it hit a new
three-year high, ETH corrected to below $900.
Ether rallied due to
the momentum of Bitcoin. Historically, following a strong BTC rally,
altcoins have seen a swift uptrend. Traders usually call this “alt
season” because many altcoins tend to increase in tandem.
Why did Ether correct, and what happens next?
Ether rose following Bitcoin’s rally, but on-chain data also showed that there was a sell-side liquidity crisis.
Throughout
2020, the reserves of ETH on exchanges declined to historic lows. This
means that there has been a lower number of ETH that can be sold on
exchanges. Ki Young Ju, CEO of CryptoQuant, explained:
“It
seems the sell-side liquidity crunch started to hit $ETH just like the
$BTC market. For $BTC, all exchanges' reserves decreased by 31% compared
to Feb 2020. For $ETH, all exchanges' reserves decreased by 20%
compared to May 2020.”
However, despite the strong rally
to levels unseen since January 2018, Ether swiftly pulled back. There
are two main reasons behind its correction: high funding and heavy sell
orders at a key resistance level.
According to data from Glassnode, the futures funding rate of Ethereum is averaging 0.2% across major exchanges.
Normally, the funding rate stays at around 0.01% when the futures market is not overheated. Analysts at Glassnode said:
“Ethereum
funding rates are at a record high, breaking an average of 0.2% across
major exchanges. #BitMEX is leading the pack with a funding rate above
0.4%.”
When the market is overwhelmingly swayed to buyers or long contract holders, the probability of a long squeeze rise.
The
term long squeeze refers to a scenario during which long contract
holders are forced to liquidate their positions when the price of
Bitcoin drops. This leads the selling pressure on BTC to intensify in a
short period.
Where traders see Ethereum going next
A
pseudonymous trader known as “Mayne” said Ethereum rejected from the
weekly supply level, which is where the price of ETH was when the weekly
candle opened on Monday. The trader said:
“Rejected
from weekly supply EQ for now. Predicted funding going ham, seems like
apes are mashing the leverage long green button. I'm out of leveraged
longs for now.”
Market and on-chain data generally
suggest that late buyers are being squeezed out by aggressive sellers.
As soon as ETH surpassed $1,100, the spot market saw an increase in sell
orders.
Alex Wice, one of the top-performing traders on the FTX
leaderboard, shared a short position on both Ethereum and Bitcoin on
social media.
The trader also similarly expressed concerns
regarding the high funding rate of Ethereum and suggested that they
would have to reset.
source link : https://cointelegraph.com/news/ethereum-price-spike-to-1-161-for-the-first-time-in-three-years-what-s-next
