Last Friday, escalating trade tensions between the United States and China triggered one of the largest cryptocurrency liquidations in history, significantly impacting Ethereum. The digital asset witnessed a substantial price drop, breaching crucial technical support levels and cooling the derivatives market. 📈
Analysis by CryptoQuant reveals a breakdown on a ten-area chart. Areas 1 through 3 displayed buyer activity, keeping prices above key indicators like the EMA 96, SMA 240, and AVWAP. However, areas 4 and 5 exhibited weakness before escalating conflict headlines, with the price falling below these support levels.
Crucially, in area 5, previously acting as support, it was tested and became resistance. This technical failure marked a shift towards seller control. The catalyst for further decline came in area 6, aligning with China’s announcement of new export controls on rare earth minerals. The price crashed below all mentioned support levels including the AVWAP based on the September 25 low, sparking a liquidation cascade wiping out over $19 billion in leveraged positions and impacting over 1.6 million traders.
Following the initial turmoil, signs of recovery emerged in sections 9 and 10 as tensions eased. The market witnessed renewed vigor after analysts from The Kobeissi Letter indicated that the US may have misinterpreted China’s export controls, which were not a full ban. Subsequent posts by President Trump and Vice President JD Vance offered relief, leading to a price rebound and ETH surpassing all support levels, including AVWAP, EMA 96, and SMA 240.
The impact on Ethereum’s derivatives market was significant. Open Interest (OI), representing the total value of unsettled contracts, plummeted from $33 billion on August 22 to approximately $18 billion following the October 10 crash. This dramatic contraction highlights a cooling trend in speculative activity as leverage was forcibly removed.
However, this deleveraging process could have created a healthier foundation for institutional investors, who saw this downturn as an opportunity to accumulate. Data from CryptoQuant reveals that Ethereum’s Coinbase Premium Index hit its highest point this year during the sell-off.
Institutional buying, particularly seen with Bitcoin, acted as a support floor, pushing ETH’s price back towards $4,100 briefly before rising again.