Ethereum Faces Short-Squeeze Risk: Rising Leverage and Key Resistance at $2.7K
The Estimated Leverage Ratio is an important metric for gauging the level of risk participants in the futures market are willing to take by using leverage. A rising ELR typically signals an increase in leveraged positions, which can amplify market moves in either direction.
The metric has been increasing over the last few months, coinciding with an overall price downtrend. This suggests that more traders are opening high-leverage short positions, betting on further price declines for Ethereum. The market appears to be bearish on ETHâs upcoming prospects, with many expecting further downside.
With leverage at concerning levels, the futures market is now considered overheated. This leaves Ethereum vulnerable to a potential short-squeeze event. In such a scenario, if ETHâs price rises unexpectedly, traders with short positions could be forced to cover their positions by buying back ETH, creating an impulsive price spike. The 100-day moving average at $2.7K is a key resistance level in this regard. A breakout above this level would likely lead to massive short liquidations, driving ETHâs price higher.
