Ethereum (ETH) has just issued a signal reminding traders of a short squeeze.
After surpassing the $2,670 level, the sudden recovery wiped out over half a billion dollars in short positions solely on Binance, marking one of the largest liquidations the market has seen in recent times.
And currently, with new ETH flowing into derivative exchanges, the situation seems ready for more liquidations.
What triggered the short squeeze?
The price surge of Ethereum above $2,670 caught short traders with leverage off guard, causing one of the largest liquidations in recent months.
CryptoQuant data shows a $500 million gap in short liquidations on Binance, a clear sign of excessive bearish betting.
Predicting further price declines, traders have actively engaged in short positions. But as ETH reverses direction, these positions fall into forced liquidation.
These forced liquidations have triggered a price increase, forming a short squeeze with late participants and a rapid change in market sentiment.
The chain reaction pushed the funding rate into positive territory, highlighting a strong reversal of bearish leverage.
The numbers indicate increased short selling pressure.
After forming a short squeeze, Ethereum is witnessing a significant increase in deposits to derivative exchanges, with many exchanges exceeding 30,000 ETH per transaction, as shown in the chart.
The increase began around June 13, signaling a rapid position change among traders. While some may be hedging spot risks after facing a short squeeze, the scale and timing of the inflow suggest that short sellers are increasing.
If Ethereum's price loses momentum, inflows could lead to new bearish leverage, increasing the risk of another reversal. In summary, the market could become more chaotic.
The funding rate turns positive as open interest stabilizes.
Ethereum's recovery has pushed the funding rate into positive territory, signaling bullish sentiment despite the recent market volatility.
In the upward trend, the aggregate open interest surged but dropped sharply amid liquidations, then stabilized at nearly $15.4 billion.
The rising funding rate indicates that long traders are once again paying to maintain their positions.
Traders are leaning bullish in the short term, but with a cautious stance. If open interest rises again, it could spark volatility. This occurs when leverage increases and derivative inflows are high.
