On Tuesday, a significant position in Ethereum (ETH) valued at over $126 million came dangerously close to liquidation, dropping within 4% amidst a wider cryptocurrency market downturn. This dip in value has been a stark reminder of the volatile nature of digital assets.
The recent price action has seen ETH retrace the entirety of its rally from Sunday, resulting in a staggering 22% drop over the past 48 hours. Currently, Ethereum is trading around $2,080, raising concerns over its short-term stability.
A fortunate bounce at the $2,000 mark helped safeguard Ethereum’s decentralized finance (DeFi) ecosystem, preventing a series of liquidations on the collateralized debt platform MakerDAO. Initial liquidation points were identified at $1,929, with subsequent thresholds at $1,844 and $1,796. Collectively, these positions account for a staggering $349 million.
Price behaviors in the cryptocurrency market are often drawn to liquidation levels, as trading firms strategically target these supply zones. When liquidations occur on MakerDAO, the ETH collateral involved is sold or auctioned, with fees benefiting the protocol. This process often sees the collateral purchased at a discount, which may later be sold on the broader market for profit, potentially exacerbating price declines.
Liquidations in the DeFi space tend to have a more substantial impact compared to futures, since they involve spot assets rather than derivatives that typically exhibit higher liquidity due to leverage. Trading firms, therefore, see value in targeting these liquidation points, as a triggered liquidation can lead to immediate volatility and a possible cascade effect, where one liquidation incident spurs several others.
Historically, after a cascade, once buyers have absorbed the newly available supply, prices usually trend upwards. This rebound can tempt liquidated traders to re-enter their long positions, hoping to recover losses.
According to data from DefiLlama, there is currently $1.3 billion worth of ether at risk of liquidation, with $427 million of that amount situated within 20% of the current market price.
Furthermore, ETH has been underperforming against Bitcoin (BTC) during this recent bull cycle, slumping to a ratio of 0.0235 compared to earlier cycle peaks of 0.156 and 0.088. This decline can be attributed to institutional inflows into various spot BTC Exchange-Traded Funds (ETFs) and the emergence of competitive blockchains like Solana and Base, which have eroded Ethereum’s market share.
As the cryptocurrency landscape evolves, the dynamic between assets like ETH and BTC continues to shift, highlighting the need for traders and investors to remain vigilant and adaptable in these unpredictable markets.
