Ethereum's price recovery above $2,670 initiated a major liquidation event on Binance, resulting in over $500 million in "short" (sell) positions being forcibly closed.
This action compelled late sellers to close their positions during a swift upward price surge, intensifying the liquidation delta.
Why did the short squeeze occur?
* Leveraged short overcrowding occurs when traders excessively take short positions in anticipation of further market decline, resulting in a precarious situation prone to a squeeze.
* As Ethereum’s price began to recover, late-entry sellers were forced to close positions, triggering automatic buy orders to cover shorts.
* As sellers faced liquidation, their margin calls triggered market purchases, driving funding rates into positive territory.
Rising Ethereum Inflows to Derivative Exchanges:
* Starting from June 13, there has been a notable surge in Ethereum deposits to derivative exchanges, with multiple inflows exceeding 30,000 ETH per transaction.
The surge in Ethereum deposits on derivatives exchanges can fulfill various functions:
* Increased Hedging: Traders might be depositing Ethereum to hedge existing spot positions, either by opening new short positions or adjusting their derivatives exposure.
* Increased Short-Selling Risk: The ETH deposited on exchanges may facilitate new leveraged short positions if prices stagnate, thereby exerting additional downward pressure.
Conclusion:
The dynamic relationship between liquidations, exchange flows, and funding rates remains critical. While the price may undergo a minor correction to normalize funding rates, the rise in exchange ETH balances could set the stage for renewed volatility—either by supporting leveraged short positions or facilitating bearish strategies.
Traders should closely monitor funding rates and netflow trends, as these metrics will determine the direction of ETH's next move.
Written by Amr Taha
