Will ETH Long Liquidations Curb Potential Upside

Ethereum [ETH]Price action may have provided a slight upside so far since late August. Its price action looks less exciting than expected, especially now less than two weeks into the merger. Is this due to not having enough buying pressure or is there something else to this performance?

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The dominant narrative of ETH over the past few weeks has focused on consolidation. As is often the case, a rally is expected in the weeks or days leading up to a major upgrade and then investors sell off the news. After less than two weeks of consolidation now, ETH price touched bearish territory.

One possible reason for the drop in the price of ETH is the unwinding of long leveraged positions. And recorded strong demand in August, especially in the first half of the month, before a significant decline. The loan-to-value ratio of ETH recorded a sharp increase in the first half of August, followed by a significant decline. This confirms that the use of leverage as a price has begun to set.

Source: CryptoQuant

The next big increase in leverage occurred at the end of the month, but it has since declined. The decline in Ethereum borrowing rates continued any decline in the leverage ratio. This result corresponds to the bearish days of ETH during the month.

ETH’s results on August 19 were among the best examples of a case where long-term liquidations have dampened price action. The price had calmed down after briefly entering the overbought zone in mid-August and leveraged forex traders started increasing their positions.

Source: Glassnode

The market recorded the largest long-term liquidation of ETH on August 19, which created a strong wave of selling pressure. A similar incident occurred on August 26, when long buyouts increased followed by another big increase in long liquidations.

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A noteworthy note is that there is a discrepancy between the ETH funding rates and the appraised loan-to-value ratio. Likewise, the metrics for the forward opening rates and the long futures liquidation showed differences.

So traders should consider monitoring the above metrics to determine healthy entry and exit points. Other market forces also played a role to limit the potential upside for ETH, but the long liquidations clearly played a role.

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