Is ETH Price’s Spark To $3,180 Crash Triggered By Overleveraging?

The price of Ether (ETH) rose 14% between February 26 and February 28, hitting a two-year high of $3,484, but the move coincided with spending in the bullish interest space, which was modest. As Ether faced a lightning strike to $3,180 on February 28, some investors believe that over-optimism fueled by mis FOMO fears has increased the risk of a spillover.

Not all demand for Ether usage is related to YOLO betting.

First, it should be noted that some traders may need temporary leverage while raising funds, or selling other assets or waiting for deposits to come in. Such moves are common in the heat of the market, even for professional arbitrage tables, and the reasons are increasing amounts of money that can last for two days or even weeks.

Some analysts argue that the upcoming Denkun hard fork has fueled investor optimism in Ether's price. The expected upgrade will significantly reduce the cost of data logging for the Ethereum network's preferred scaling solution.

Ethereum's leading decentralized exchange (DEX), Uniswap, has already announced its plans to launch a v4 implementation, so one should expect users to really reap the benefits following the Denko update. Additionally, analyst TrustlessEstate expects a 90% drop in spending on the X social network, which should be “fuel for the already roaring meme economy.”

Ppl sleeping on Ethereum update

Let me put it again

In the year On March 13, Ethereum is injecting a major stimulus into the meme economy by slashing costs by 90%.

Ethereum basically replicates the script for free, and the packet tx remains the same

For an already roaring fuel… https://t.co/LxmyxARZ7d

— David Hoffman.eth/acc (@TrustlessState) February 28, 2024

Regardless of one's assessment of recordings or the potential of this market, their impact on network costs and latency is undeniable. For example, Avalanche, a blockchain that claims to support much higher scalability than Ethereum, experienced an outage on February 23 due to excessive demand in Mempool, according to an Ava Labs representative.

Scalability has long been Ethereum's Achilles' heel, with the average 7-day transaction fee staying at or above $4 for the past four months, but that hasn't stopped Network Deposit (TVL) from reaching its peak since July 2022. 30.5 million in ETH.

The growth of deposits reflects the emergence of new decentralized finance (DeFi) such as liquid staking, industries such as Lido, EigenLayer and Rocket Pool, but also the strategy of successful communication protocols including Summer.fi and Instadapp. In short, investors' interest in ETH is driven by demand for decentralized applications of the network.

Temporary increases in Ether's funding rate are not unusual.

ETH derivatives markets should be analyzed to determine if excessive leverage has fueled Ether's recent rally to $3,400. Perpetual contracts, also known as reverse swaps, typically include an embedded rate calculated every eight hours.

A positive funding ratio indicates increased leverage among long (bull) positions, while a negative leverage ratio indicates increased leverage among shorts (bear).

In the year On November 9, 2023, the price of Ether increased by 13.3%, and Ethereum funding increased by more than 5% for the month, but the price of consumption fell to 2% the next day, so whatever caused the increase in speed was quickly corrected. However, high consumption costs that persist over a long period of time indicate unhealthy bullying.

Related: Matrixport warns of market euphoria, correction after Bitcoin's $60K milestone

In the year Ether's fall to $3,180 has eroded margins, increasing the leverage of previously bullish positions.

Note that Ether's current funding rate of 0.06% – equivalent to 5.6% per month – is much higher than the previous two weeks. Such a level is often considered unsustainable, but only if it holds ground for a relatively long period of time, perhaps two weeks.

So currently ETH longs are facing liquidation risk, but it is wrong to overuse the rally as the indicator was relatively stable until February 27th, after the price of Ether rose 42% in the last 30 days.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.