Key Takeaways
- The short liquidations helped fuel the Ethereum rally beyond $2.7k, but the $5 billion in reserves among the top 10 ETH holders was one of the primary factors driving the rally. This demand is expected to grow in the coming months, and could spur Ethereum to new all-time highs.
Ethereum [ETH] not only reclaimed the psychological $3,000 level this week but also flipped it to support.
Since the 14th of July, ETH has rallied by 16%, trading just above $3.5k at the time of writing. The move was driven by strong spot ETF inflows and increased on-chain activity.
The exchange reserve was also falling, a classic sign of accumulation. Holders typically move their assets out of centralized exchanges to store them in cold wallets for the long term, and the outflows from these exchanges are visible on-chain.
The surging Open Interest indicated that speculative activity was also intense.
The combination of dwindling exchange reserves and rising Open Interest drove the Estimated Leverage Ratio to cycle highs.
It appeared irresponsibly high and headed for a price retracement, but that is not necessarily the case, considering the healthy spot demand as well.
The role of the derivatives market in driving Ethereum higher
There was evidence that the short liquidations were fueling Ethereum’s northward charge. In a post on CryptoQuant Insights, analyst Darkfost pointed out that short liquidations were dominating on Binance.
Unlike the first few months of April, when long liquidations were higher, the short liquidations now suggested some market participants were positioned against the trend.
They also inadvertently helped fuel it with the liquidations of their short positions.
Looking at the value of short liquidations in USD, there were multiple short squeezes since May, with over $20 million liquidated in a day.
The size of these short liquidations could fuel the rally, alongside the spreading belief in Ethereum as a store of value.
The top 10 companies collectively hold 1.6 million ETH, worth $5 billion. SharpLink [SBET] led the way with 280.6k ETH in its reserves.
It is expected that more companies will add to their Ethereum reserves, creating billions of dollars worth of demand.
