After suffering volatility and a lull in demand since early February, ETH is now seeing an increase in leveraged trades. Contrary to how it performed in January, current observations point to a higher possibility of liquidations, which might result in an increase in volatility.
A recent CryptoQuant investigation examined the possibility of an overheated Ethereum futures market. The research was based on the observed spike in participants in the futures market’s appetite for leverage.
Lower market demand, which results in less fervor in price action, is reflected in the increase in leveraged trades. A rise in the demand for leverage is frequently accompanied by an increase in the risk of long or short position liquidations. A significant liquidation is typically followed by a spike in volatility because of the ensuing short or long squeeze. But is ETH presently on its way to such an event?
Liquidations of both long and short positions in ETH may offer some intriguing information about the condition of demand. On the other side, since the beginning of March, ETH long liquidations have increased while short liquidations have decreased. The results support the theory that long liquidations were accumulating as a result of the positive expectations.
Because the price of ETH has fallen since March 2, traders have quickly sold off their leveraged long bets. An rise in short positions might result from a bearish bias, although the need for leverage is more likely to decline in this scenario. A result of the present range’s uncertainty following the spike in long liquidations. This is supported by the most recent decline in the open interest indicator for ETH, which occurred in the first few days of March.
When negative momentum halted, the open interest measure recently changed direction. This result, meanwhile, was not supported by a significant increase in bullish demand.
The growing degree of uncertainty on the path the market will take next might be one cause of this. This may account for why there wasn’t a greater need for debt as the market sought stability.
Moreover, ETH’s weighted sentiment showed a lack of excitement, particularly on the likelihood of another surge. The market in general and the current low demand for cryptocurrencies are summarized by the weighted sentiment indicator.
Due to the release of important economic data that might affect prices later in the week, things are likely to stay the same until midweek or the end of the week. These concerns might also be the reason why most investors are reluctant to use leverage.