On Aug. 2, the price of Ethereum peaked at $418; then, within 5 minutes, it dropped by 25%. On Binance Futures, ETH plunged to as low as $302, before recovering back to $385 within 10 minutes.
The entire sequence of events happened in a total of 15 minutes. Ethereum hit $418, then dropped to $302, and rebounded to $385, recording a 25% drop and a 27% upsurge, respectively.The price of Ethereum saw unusual 25% price movements in a 15-minute span. AFP via Getty Images
Two factors appear to have contributed to the extreme price action of Ethereum. First, based on market structure, the $410 to $420 range has acted as a historical resistance area since 2017. Second, a sudden sell-off at the resistance led to a cascade of liquidations.
The initial drop led to liquidations of more than $1 billion worth of Bitcoin and Ethereum futures contracts in a short period, per data from ByBt. This was the largest liquidation event since March 13, when the price of Bitcoin dropped below $3,600.
In June 2017, the price of Ethereum increased from around $90 to over $400 within 28 days. The explosive rally, which happened months before Bitcoin’s record-high run up to $20,000, rejected at $420 on Coinbase.The weekly chart of Ethereum against the U.S. dollar on Coinbase with a historically relevant ... [+] resistance level. TradingView
Coincidentally, the recent uptrend of Ethereum was also rejected at the same level. As soon as ETH neared $420, it saw an abrupt sell-off across major exchanges. In a few minutes, it experienced a 25% drop.
The price drop was exacerbated by cascading futures liquidations. When a long contract gets liquidated, the holder has to sell the contract, causing more selling pressure.
The steep rejection, possibly triggered by the $420 resistance and mass liquidations, marked a “blowoff top.” Alex Krüger, a global markets analyst, w...