Bitcoin, Ethereum Liquidation Risk?
Bitcoin and Ethereum: Navigating a Risky Market
Bitcoin (BTC) and Ethereum (ETH) experienced a significant short squeeze on May 8th, resulting in nearly $1 billion in liquidations, with 80% stemming from short positions. While this initially appeared bullish, several key indicators suggest potential risks.
Overbought Conditions and Rising Volatility
The Relative Strength Index (RSI) for both BTC and ETH indicated overbought conditions, historically a precursor to momentum stalls and increased short selling. Coinglass data revealed 139,241 traders liquidated in 24 hours, totaling $328 million. Notably, longs suffered a significant blow, losing $170 million, highlighting increased market volatility.
Technical Indicators Flash Warning Signs
The market is currently in a precarious position. While BTC and ETH are trading above key support levels, technical indicators raise concerns. The RSI remains overbought, and On-Balance Volume (OBV) shows signs of stalling—characteristics of a rally nearing exhaustion. Meanwhile, Open Interest (OI) increased by 1.25% to $137.44 billion, suggesting elevated leveraged exposure and increased risk of further liquidations if support fails. This is depicted in the chart below:
Source: Coinglass
Recent data shows $61.25 million in ETH long closures and over $600,000 in BTC long liquidations within a 4-hour timeframe. This suggests the initial $170 million long liquidation may be just the beginning.
Whale Activity and the Path Forward
The next market move depends largely on how large market participants (whales) behave. Their actions usually signal either a distribution trap (selling pressure) or controlled consolidation above current supply levels. Lookonchain data identified a whale transferring $13 million USDC to Hyperliquid to short both BTC and ETH—betting on a near-term price reversal.
Unless substantial buying pressure emerges to reverse the current trend, the thin bid-ask spread and exhausted momentum could lead to further price declines. This could potentially represent a payback for the massive short liquidations earlier this week.
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