Does Ethereum’s Flash Crash To $2K Mean ETH’s Bullish Momentum Is Dead?

On January 3, the price of Ether (ETH) experienced a massive 14% correction, dropping from $2,380 to $2,050 in less than 2 hours. This price level has not been seen since December 1, 2023, and the unexpected swing caused the loss of $100 million worth of ETH long contracts, which were bets on the price going up.

Traders are now questioning the significance of this price correction and whether it signals the end of the bullish momentum following three failed attempts to break above $2,400 last month. Coincidentally, this was the third time in the same period that the price of Ether has fallen below $2,150, making it difficult to argue that the bull's momentum is over.

A quick recovery to $2,230 on January 3 was the first focus from the price chart, suggesting that panic selling and derivatives liquidity had weakened. Some argue that the trigger was the banning of the spot Bitcoin ETF, a market analysis published by Matrixport on January 3rd. In particular, the digital asset platform Matrixport was founded by Jihan Wu, who is known for his highly successful work in Bitmain's ASIC mining business.

More importantly, investors are taking note of the latest comments from Eric Balchunas, senior ETF analyst at Bloomberg. According to Balchunas in an interview with Cointelegraph, the chances of approval remain at 90 percent. However, he reiterated that it could take longer to reach a final decision from the US Securities and Exchange Commission. Basically, the markets overreacted in both directions: showing overconfidence in the January 10 deadline and failing to separate Matriport analysts' opinions from actual news and events.

Attorney and business litigator Joe Carlassare described the situation perfectly in a social media post.

I know people are looking for hope for a narrative, but Bitcoin is not sold on some stupid report about ETF rejection.

Sold because nothing goes to the top and it's easy handling for fluidity to make a long squeeze. In short, the market is overbought.

— Joe Carlasare (@JoeCarlasare) January 3, 2024

According to Carlassare, “the market was overbought,” indicating buyers were taking advantage of excess leverage, making bulls easy targets for whalers and market makers. This conclusion can be drawn from the analysis of ETH monthly futures annual premium which should be between 5% and 10% in healthy markets.

The data indicates that demand for long-term positions is growing, with futures contract premiums increasing from 11% on December 18, 2023 to 27% on January 2, 2024. But maintaining such positions for long became expensive for buyers. . This increase in scale followed a 15% rally in ETH price.

The last time ether bulls had such a big loss in the futures markets was in 2018. It was August 17, 2023, when $170 million worth of long positions were liquidated. A similar intraday 15% correction occurred, dropping the price from $1,800 to $1,530, but ETH quickly rebounded to $1,680 within two hours. However, the price recovery did not last in the medium term as ETH revisited the $1,530 low on September 11, 2023.

RELATED: Matrixport founder says distribution of Bitcoin ETF report was ‘beyond our control'

Using derivatives, whales and arbitrage desks should assess the size of ether options to better determine exposure. By examining put (sell) and call (buy) options, we can estimate the prevailing bullish or bearish sentiment.

Except for a brief period on December 19, 2023, ETH options have consistently lagged call options in volume, by roughly a factor of two. This reduces the need for defensive strategies, reinforces confidence and excessive optimism in Ether futures markets.

The cause of the 14% flash failure on January 3 may never be determined. However, judging by the ether derivatives markets, investors seem overconfident and overleveraged. This won't necessarily end Ether's bull run or bring profits below the $2,400 resistance level before the ETF's decision. The data suggests that the market is healthy, at least from an initial perspective.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.