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Ethereum Futures Liquidations Reveal Major Buying Opportunities, Says CryptoQuant

Ethereum has experienced several large liquidations of its futures positions in the past year, according to data from CryptoQuant, a crypto data and analytics provider. These liquidations, which occur when traders are forced to close their leveraged bets due to unfavorable price movements, have often coincided with major buying opportunities for Ethereum investors, as CryptoQuant’s analysis shows.

According to CryptoQuant, there have been six major buying points for Ethereum since 2023, based on the liquidation of long and short futures positions. A long position is a bet that the price of Ethereum will rise, while a short position is a bet that the price will fall. When the price moves against the direction of the position, the trader may face a margin call, which requires them to deposit more funds or close their position at a loss.

The second-largest liquidation of long positions occurred on January 12, 2024, following the approval of the Bitcoin spot ETF by the U.S. Securities and Exchange Commission (SEC). The Bitcoin spot ETF, which tracks the price of Bitcoin directly by holding the cryptocurrency itself, was seen as a bullish sign for the crypto market, as it would allow more investors to access Bitcoin through their regular brokerage accounts. However, the news also triggered a price correction for Ethereum, as some traders may have sold their Ethereum holdings to buy Bitcoin or the Bitcoin spot ETF.

Source: CryptoQuant

The liquidation of these large long positions often created a longer-tailed candlestick on the Ethereum price chart, which indicates that there was a strong influx of buying from the whales, or large investors, at the same time as the large long positions were liquidated. Therefore, when the price reaches the low of the longer-tailed candlestick, the market exhibits extreme sentiment, which can be a major turning point that determines whether the price trend is up or down.

CryptoQuant’s analysis suggests that such extreme situations are favorable for buying Ethereum, as they indicate that the market is oversold and that the whales are accumulating Ethereum at a discount. If the price holds and bounces back from the low of the longer-tailed candlestick, investors are likely to be reassured and return to buying, creating a positive feedback loop that drives the price higher.

CryptoQuant’s analysis also shows that this pattern has repeated itself several times in the past year. If you look at the purple boxes for September-October, November, and December 2023, you can see that in all three cases, large amounts of long positions were liquidated, and when the tail lows were briefly broken, the market bounced back. These were the first, third, and fifth buying points, respectively, according to CryptoQuant.

The tail low of the recent mass long position liquidation is $2.45k, so if we break that price and recover right away, we’re likely to see a bounce, according to CryptoQuant. This would be the sixth buying point for Ethereum, and could signal the start of a new uptrend for the cryptocurrency. However, if the price fails to recover and continues to decline, the market sentiment could turn bearish, and investors could face more losses.

CryptoQuant’s analysis is based on the data from its Liquidation Index, which tracks the amount of Ethereum futures positions that are liquidated on various exchanges, such as BitMEX, Binance, Bybit, Huobi, OKEx, and FTX. The Liquidation Index can be used as a tool to gauge the market sentiment and the leverage level of Ethereum traders, as well as to identify potential buying and selling opportunities.

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