There is undeniable excitement in the market as the Ethereum Merge draws closer. The same is evident in ETH’s price action too, with the same managing to rally back above the $2,000-price level. Now, it is easy to get caught up in the hype and the FOMO, but ETH traders should be wary of potential risks ahead.
ETH recorded a high flow of capital over the last few days and this triggered more upside on the chart. The FOMO and excitement around the Merge is only expected to continue increasing. However, investors should note that the Merge is still a few weeks away. The euphoria, as a result of the aforementioned price gain, creates opportunities for unexpected shorting by whales. Hence, there’s a serious need to tread carefully.
Assessing the risk of long liquidations
Futures long liquidations have tanked drastically since 9 August as the price sought more upside. This has allowed leveraged long positions to thrive in current market conditions. On the other hand, Futures short liquidations recorded a sharp incline on 9 August, but they started dropping the next day. In fact, that has been the case since.
Source: Glassnode
The drop in Futures short liquidations suggests that investors are jumping onto the bullish bandwagon. Meanwhile, at press time, ETH’s dormancy metric was in the lower range of its 4-week performance. This means investors are opting to hold on to their coins rather than selling in anticipation of higher prices.
Source: Glassnode
ETH’s dormancy metric aligns with the observations regarding long and short positions in the market. Furthermore, this confirms that there is strong demand for ETH and low selling pressure. Worth pointing out, however, that the Merge is still weeks away. And, a lot can happen between now and then.
One possibility is that whales might take advantage of recent inflows by executing large short positions. Such a move might wipe out some profits while liquidating leveraged long positions. The outcome would be a substantial increase in selling pressure.
ETH Futures Open Interest, at press time, was at its highest level over the last 4 weeks. Market manipulators often look for such opportunities in the market.
Source: Glassnode
Conclusion
A lot can happen in the next 4 weeks, and this includes a substantial retracement triggered by a big short. Such a move would wipe out leveraged positions, potentially triggering a significant pullback. Note, however, that this is a potential short-term risk and does not necessarily affect ETH’s performance in the long-term.
