TLDR
- Over $11 billion worth of shorts face potential liquidation if ETH price rises above $4,200
- ETH has shown recovery signs after last week’s pullback, trading around $4,054
- A bullish divergence has formed between ETH price action and RSI indicator
- ETH broke above a key bearish trend line with resistance at $4,000
- Two possible scenarios: rally past $4,200 or capitulation below $3,400
Ethereum price has been showing promising recovery signs after experiencing a significant pullback last week. The cryptocurrency is currently trading around $4,054 and appears to be approaching a critical price level that could trigger a massive short squeeze event.
According to data from Coinglass, there is over $11 billion worth of cumulative short liquidation leverage positioned just above the $4,200 price level. This enormous amount of short positions suggests that many traders are betting on ETH’s price to fall further.
However, this situation creates the potential for a short squeeze if Ethereum’s price pushes above the $4,200 threshold. In such a scenario, accounts with leveraged short positions would be forced to buy ETH to cover their losses, potentially accelerating the upward price movement.
The data reveals that on Hyperliquid alone, about 25,790 ETH worth of leveraged shorts (equivalent to approximately $104.6 million) risk liquidation at $4,058.
Market sentiment, as reflected by the Fear and Greed index, experienced a sharp decline last week, dropping as low as 28 on Friday—approaching the extreme fear territory. This negative sentiment explains why so many traders opened short positions.
However, sentiment improved slightly during the weekend, which corresponded with Ethereum’s price bouncing back from lows of $3,812 to levels above $4,000.
Technical Indicators Point to Recovery
ETH price has formed a bullish divergence between its price action and the Relative Strength Index (RSI). While ETH formed a higher low compared to its August bottom, the RSI formed a corresponding lower low. This technical pattern often precedes upward price movements.
Additionally, there was a break above a key bearish trend line with resistance at $4,000 on the hourly chart. Ethereum is now trading above both $4,050 and the 100-hourly Simple Moving Average, suggesting bullish momentum.
The cryptocurrency faces immediate resistance near $4,150, followed by a more critical resistance level at $4,170, which corresponds to the 76.4% Fibonacci retracement level of the recent downward movement from $4,275 to $3,826.
If Ethereum manages to break above $4,200, it could target the $4,250 resistance level next. An upside break above $4,250 might pave the way for further gains, potentially reaching $4,320 or even $4,350 in the near term.
Possible Downside Scenario
Despite the recovery attempts, an extended bearish outcome remains possible. If Ethereum fails to clear the $4,200 resistance, it could start a fresh decline.
Initial support on the downside lies near $4,050, with the first major support at the $4,000 level. A clear move below $4,000 might push the price toward $3,920, followed by $3,880. The next key support sits at $3,820.
In a capitulation scenario, ETH could risk over $1 billion worth of long positions if the price slides below $1,865. Such an event, combined with subsequent liquidations and bearish momentum, could drive Ethereum’s price as low as $3,380, where the next major support level is located.
Ethereum ETF flows may also play a role in determining the extent of recovery. Last week’s downside was partially fueled by sustained ETF outflows, suggesting that renewed ETF demand could contribute positively to price action.
At present, whales appear hesitant to support the recovery, as net spot flows still lean toward outflows by about $10 million. However, smart money might be interested in taking advantage of the potential liquidity from a short liquidation event above $4,200.
For now, Ethereum continues to consolidate above the $4,000 level as the market closely watches for a decisive move that could trigger either a short squeeze rally or a deeper correction.
