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Ethereum Faces Short Squeeze Risk Amid Growing Leverage in Futures Market
Ethereum’s Growing Risk of a Short Squeeze
Ethereum, the world’s second-largest cryptocurrency, is currently facing an increased risk of a short squeeze as traders in the futures market are heavily leveraged, signaling a bearish sentiment. This leverage indicates that a considerable number of traders are anticipating a further decline in Ethereum’s price.
Signs of Short Squeeze in Futures Market
If Ethereum’s price suddenly surges, these leveraged traders may be compelled to close their positions, potentially triggering a short squeeze. This scenario would force short sellers to buy back Ethereum in order to cover their positions, leading to a price increase.
Analysis of Leverage Trends
Analyzed data reveals a consistent rise in the Estimated Leverage Ratio (ELR) in recent months, indicating a surge in leveraged positions. This trend suggests that many traders have entered high-leverage short positions, particularly due to Ethereum’s recent underperformance compared to Bitcoin.
Potential Consequences of Overheated Futures Market
The futures market’s current overheated state, with leverage at risky levels, makes Ethereum vulnerable to a potential short squeeze. This could create a feedback loop, driving the price even higher as more traders rush to close their positions.
Key Resistance Level at $2,700
Ethereum’s 100-day moving average of $2,700 is considered a critical resistance level. If a short squeeze leads to a breakout beyond this point, Ethereum’s price could experience further upward momentum. Analysts predict that Ethereum could reach $10,000 if it breaks out of its current ascending trendline pattern.
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