Ethereum Recovered 50% in 24 Hours Due to Short Squeeze

Alex Cho

Alex Cho

CEO l Research Director

[email protected]

Jason Chen

Jason Chen

COO l Research Editor

[email protected]

Shakeel Stewart

Shakeel Stewart

Columnist and Author

Things seem to be recovering a bit more, perhaps because this is just a dead cat bounce, or because the downtrend tends to move in waves. In this case, if you’re a bear, the trend is your friend, but don’t push the leverage too much or you’ll get margin squeezed if the market swings up a bit aggressively from here. 

The global crypto market cap is currently $1.79 Trillion, which is an increase of 10% on the session. Some of the fear based selling may have translated to some over-extended drops on the tape, but we’re starting to think that the hyper-extended rally from December 2018 until April 2021 has pretty much come to an end, and we have to anticipate another major wave of selling similar to other market crashes driven by another wave of phony coins, and another wave of wash out NFT (non-fungible tokens) and whatever else “noun” gets associated with coins or tokens. 

We think a number of things could swing sentiment negatively during the per usual cryptocurrency winter we’re heading into with 2021. Of course, we would tell people to consider buying cheap value stocks, but if playing it safe doesn’t suit you, there’s always the option of betting against the two major coins.

Figure 1. Bitcoin Price Analysis

Source: CoinMarketCap

At one point, Bitcoin broke below $35,000 on the 19th of May, 2021. Since then, the coin seems to be recovering, and holding above $40,000. Typically, in a large-scale sell-off with cryptocurrencies the coin tends to find a bit of a bounce on the way down before another wave of selling sends the coin lower.

However, nobody can seem to explain the sudden panic, but with the hyper-extended rally from $3,000 to $60,000 investors can imagine that a 2,000% run in the value of BTC would eventually come back down cratering, right? 

It’s just the nature of the BTC markets to be more volatile than other assets, and so likewise we’re probably running through a continued selling pattern, but with the number of loser weeks higher than winner weeks. We think investors should consider buying on the way down, but would consider a bargain re-entry point below $20,000 on BTC, perhaps it may retrace up to 80% from $60,000 implying $12,000 would be the absolute low-point for the price of BTC if we base this on historical volatility.

Ethereum Price Analysis

Figure 2. Ethereum Price Chart 

Source: CoinMarketCap

So, Ethereum had a pretty interesting week, and at one point fell by 50% from $4,000 (where it started the week) to $2,000. However, because the selling was so extreme, ETH seems to have recovered a bit of what it lost, and it now trades at $3,000 implying roughly a 33% loss over the span of 7-trading sessions. Or, if someone had bought at $2,000 they’re up 50% in a span of a week, which kind of points to how volatile cryptocurrencies can be on the way down. If you had 3x margin leverage on the short side at $2,000 as an entry, you would have been wiped out within a span of 24 hours. Hence, we think the $2,000 to $3,000 price move was mostly a short squeeze involving high margin trading accounts on Binance and etc.

We think the situation with ETH is much like BTC, but perhaps the faith is a bit more stronger on the way down. In other words, ETH could retrace by up to 80% from the very top over the course of a sustained down-trend, implying that the bottom would be around $800-$1,000 per ETH.

This sounds like a bargain right now, but believe us, when people panic in the cryptocurrency markets, the prices tend to crater beyond imagination. It’s very difficult to hold through periods of panic selling, which is why investors should wait patiently for really good long entries, whereas shorts have to time swing positions especially carefully given the volatility, despite the formation of a downtrend.

Disclosure: Cho Research was not compensated by any cryptocurrency foundation associated in the article titled“Bitcoin and Ethereum Recovering on May 20th, 2021.” Though Cho Research does use the research dollars it
generates from other clients of our research service to fund market research
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within this report may constitute forward-looking statements, these statements
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industry, and macroeconomic environment. Investors need to be aware of the high
degree of risk in micro capitalization equities, cryptocurrencies, crypto assets.

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