Ether (ETH) surged to $1,161 on January 4, 2021, but corrected thereafter. The second biggest crypto achieved this milestone for the first time since January 2018. Immediately after hitting that 3-year high, it corrected rapidly to below $900.
ETH rallied following the momentum of bitcoin. Altcoins also enjoyed a rapid uptrend following a massive bitcoin rally. Traders call it an ‘alt season’ since many altcoins seem to increase in value simultaneously.
Why Did Ether Correct?
Ether followed bitcoin’s lead but on-chain data revealed that there was a sell-side liquidity crisis. Throughout 2021, the ETH reserves on exchanges dropped to historic lows. It means that there has been a smaller number of ETH that was available for trading on exchanges. The CEO of CryptoQuant, Ki Young Ju, 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 2021. For $ETH, all exchanges’ reserves decreased by 20% compared to May 2021.”
Nevertheless, despite this strong rally to levels that were not reached since January 2018, Ether pulled back rapidly. The reasons behind this correction are high funding and heavy sell orders at a critical resistance level.
Based on data acquired from Glassnode, the futures funding rate of ETH is averaging 0.2% across most of the major exchanges. In a normal scenario, the funding rate stays at almost 0.01% whenever the futures market is not overheated. Glassnode analysts stated:
“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%.”
Whenever the market is overwhelmingly swayed to the buyers or long contract holders, the possibility of a long squeeze rises. The term long squeeze refers to a major scenario during which long contract holders are compelled to liquidate their positions whenever the price of bitcoin drops. That spearheads the selling pressure on bitcoin to intensify in a short period.
Where Do Traders See ETH Going Next?
One pseudonymous trader by the name ‘Mayne’ said that Ethereum was rejected from the weekly supply level where the price of ETH was hovering 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.”
On-chain and market data normally suggest that late buyers are getting squeezed out by the aggressive sellers. After ETH surged above $1,100, the spot market saw a surge in sell orders.
One of the top-performing traders on the FTX leaderboard, Alex Wice, shared his short position on both ETH and BTC on social media.
The trader also expressed worries about the high funding rate of Ethereum and suggested that they would have to go on a reset mode.