Ethereum (ETH) price action has been showing signs of recovery after last week’s pullback, and the bulls might end up being supercharged if the price pushes above $4,200.
This is because of the massive amount of short positions that could be liquidated above that level.
It is quite common for the market to seek out liquidation zones, and Ethereum price may be subject to a major liquidation event.
According to Coinglass, there were more than $11 billion worth of cumulative short liquidation leverage just above the $4,200 price level.
This suggests that ETH price may experience a short squeeze event if the price rapidly pushes above $4,200.
Such an outcome may boost the cryptocurrency’s upside as liquidated accounts might be forced to buy ETH to cover their losses.
The potential liquidations were on mainstream crypto exchanges. More data revealed that about 25,790 ETH worth of leveraged shorts risked liquidation at $4,058 on Hyperliquid. That was equivalent to about 104.6 million.
The Potential Liquidations Underscored Heavy Bearish Expectations for Ethereum (ETH) Price
Ethereum price exchanged hands at $4,054 at press time, meaning it was approaching the liquidation zone.
However, the fact that the data highlighted massive short liquidation confirmed the prevailing sentiment.
It was clear that many expected Ethereum (ETH) price to extend its downside, possibly towards the $3,380 price level. After all, this was the closest support level.
The bearish expectations reflected on the Fear and Greed index, which experienced a sharp decline last week.
For context, sentiment dropped as low as 28 on Friday, which meant that it was rapidly approaching extreme fear territory.
Market sentiment improved slightly during the weekend, indicating solid bounce-back potential.
The slight improvement reflected positively on the Ethereum price, which managed to bounce back from as low as $3,812 to price levels above $4,000.
ETH’s downside last week was also fueled by sustained Ethereum ETF outflows. This suggests that ETFs may also contribute to the extent of recovery if demand from ETFs recovers.
Ethereum Price Targets to Look Out For
Just because ETH price showed signs of bullish recovery attempts doesn’t automatically guarantee a solid pivot.
An extended bearish outcome was still probable as the bears attempt to push the price as low as possible before the end of the month.
Although the slight uptick may have offered a much-needed confidence injection, whales were still not on board with the recovery. Net spot flows still leaned in favor of outflows by about $10 million.
On the other hand, smart money might be interested in taking advantage of the potential liquidity from a short liquidation event.
A capitulation would also risk over $1 billion worth of longs if the price slides below $1,865.
In the event of a capitulation, subsequent liquidations and bearish momentum could drive the Ethereum price action as low as $3,380. This would put it within the next major support level.
On the other hand, the massive short positions above the $4,200 price level may encourage smart money to move towards that direction.
There was one key observation that favored a bullish outcome. ETH price formed a bullish divergence between its price action and its RSI.
ETH price formed a higher low compared to its August low. Meanwhile, the RSI formed a corresponding lower low for the RSI indicator.
This observation highlighted a bullish divergence that aligned with the potential recovery.