Ethereum, the second-largest cryptocurrency by market capitalization, is facing a growing risk of a short-squeeze that could potentially help its price surge. The cryptocurrency’s futures market is showing signs of extreme leverage, indicating that a significant number of traders are betting on a continued price decline.
If Ethereum’s price were to surge unexpectedly, these traders could be forced to cover their positions, potentially driving the price higher in a potential short squeeze, in which short sellers would become forced buyers to cover their positions.
A key metric for gauging the level of risk in the futures market is the Estimated Leverage Ratio (ELR), which according to CryptoQuant analyst ‘ShayanBTC’ has been steadily rising in recent months, suggesting an increase in leveraged positions. Given Ethereum’s recent underperformance relative to Bitcoin, the metric implies that many traders are opening high-leverage short positions.
The futures market is now considered overheated, with leverage at potentially dangerous levels according to the analyst, which noted this leaves Ethereum vulnerable to a short-squeeze.
Such an event could create a positive feedback loop, driving the price even higher as more traders scramble to close their positions. With Ethereum’s 100-day moving average at $2,700, the level is seen as a critical resistance level for the cryptocurrency.
The analyst noted that if a short squeeze leads to a breakout above this level, the cryptocurrency’s price could keep on climbing. As reported, another cryptocurrency analyst predicted Ethereum’s price could hit a $10,000 high after breaking out of an ascending trendline pattern formed with symmetrical triangles.
Featured image via Pixabay.
