U.Today – (ETH) just experienced its largest price move in nearly two years, wiping out millions of open positions. This rapid price movement resulted in a staggering $82 million worth of long liquidation, marking it as one of the wildest moves in the market since the beginning of the bull run.
The price chart of shows a strong downward sloping long wick, an uncommon sight that indicates a violent price change in a very short period of time. This wick represents a sharp, rapid price drop followed by an equally rapid rebound, often catching a significant number of traders off guard and liquidating their positions as the market moves rapidly against them.
So what causes this dramatic movement?
First, a liquidity crunch can trigger such a situation. In a market where many traders are positioned on the long side, a sudden rush to sell can trigger a cascade of liquidations due to a lack of immediate buy orders at current or slightly lower levels, causing the price to plummet until it reaches a level where liquidity is available.
Second, a long squeeze can occur when the market is heavily skewed toward long positions. As the market begins to turn, those with leveraged long positions may be forced to sell to cover their positions, adding to the downward pressure on prices.
The unexpected nature of this wick caught thousands of traders off guard, resulting in massive losses for those with leveraged positions. However, in the aftermath of the wick, there was a spike in buying power, indicating that many investors saw this as a buying opportunity, pushing the price back into a relatively stable zone.
Ethereum is known for its volatility, but a wick of this magnitude is a rare occurrence even for a cryptocurrency market. Investors may want to consider staying less leveraged to protect themselves from such dramatic swings.
