Crypto expert Nicholas Merten raises concerns over a looming risk of a significant liquidation event that could lead to a downward spiral for Ethereum (ETH). With over 511,000 YouTube subscribers, Merten explains the potential scenario in the DeFi ecosystem.
He highlights that traders who have over-leveraged their positions by using ETH as collateral on DeFi platforms may be forced to close their positions if the price of Ethereum starts to decline. This situation could trigger a domino effect of sell-offs, leading to a major move to the downside for ETH.
The typical use case in DeFi involves users depositing their ETH as collateral to receive stablecoins, allowing them to speculate or make further investments. However, if the price of Ethereum decreases significantly and the debt-to-loan ratio becomes unsustainable, a liquidation event becomes imminent unless traders can refinance or provide additional stablecoin collateral to cover the debt.
Merten emphasizes that for Ethereum to see a bullish pattern and break the crucial $2,000 resistance level, it needs more liquidity flowing into the market. Otherwise, he predicts that ETH will retest the $1,600 level, triggering a chain of liquidations and leading to even lower price levels.
He concludes that potential buyers must step in to support Ethereum and believe it’s the last relative low before a breakout in the technical pattern. Otherwise, failing this pattern would lead to severe sell-side pressure and liquidations, with little respite from factors like EIP 1559 or staking reduction of inflation.
As of writing, Ethereum is trading at $1,857, experiencing a 1% decline in the last 24 hours.
In summary, Nicholas Merten highlights the risks of over-leveraging in the DeFi space, leading to potential liquidation events that could impact Ethereum’s price significantly. He emphasizes the importance of liquidity influx to maintain bullish momentum and prevent a cascade of liquidations and downward pressure on ETH. As the market continues to evolve, traders and investors must be mindful of the potential risks and take appropriate measures to protect their positions.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.