Ethereum: Analyzing the $20B DeFi Drain and Its Impact on ETH's Stability at $3.2K

Ethereum continues to face challenges in the wake of significant market fluctuations, revealing the fragile nature of its current stability around the $3.2K mark. Despite a surge in stablecoin supply, investor confidence remains low, hindering any recovery.

Key Takeaways

Ethereum is showing signs of fragility at the $3.2K level, with consistent lower lows and a weak market structure.
The supply of stablecoins on the Ethereum network has reached an all-time high, but fear of missing out (FOMO) is not yet igniting sustained investment.
The question remains: Has Ethereum truly reached its bottom?

Ethereum

Recent Price Movements Signal Weakness

Ethereum began November by breaking through critical price support levels. Initially, it experienced a 7.78% drop, failing to convert the $3.8K mark into support. This was soon followed by an additional 8.80% decline, causing it to struggle at the $3.5K level. The result was two consecutive lower lows within just a week, a pattern typically indicative of a bearish market.

This raises concerns as to whether it is too soon to label Ethereum's current holding at around $3.2K as a bottom.

ETH

Source: TradingView (ETH/USDT)

Impact of Flash Crashes on Ethereum's Performance

Following consecutive price drops, Ethereum struggles to regain stability. Notably, on November 3rd and 4th, a flash crash resulted in a $2 billion liquidation. While this major market event pales in comparison to the $20 billion loss witnessed in mid-October, the psychological effects were evident. Ethereum plummeted by 15% to $3.05K, leading to those troubling lower lows. Although there is potential for a local support level to encourage some buying activity, the underlying market structure remains weak.

Reflecting back on the volatility in October, Ethereum experienced a three-week period of price fluctuations. During this time, ETH attempted to retest the $3.8K level four times as bulls sought to reclaim ground lost from the pre-crash level of $4.3K. Nevertheless, continuous selling pressure left the market structure fragile and without much progress.

As we look forward, a stable floor around $3.2K is unlikely to foster a breakout unless a strong follow-through appears. However, the stablecoin supply on Ethereum has reached a historic high—could this lead to a different post-crash cycle?

Increased Liquidity, Yet ETH Struggles to Rally

While liquidity continues to flow into Ethereum, it is evident that investors are hesitant to engage. In the decentralized finance (DeFi) space, the total value locked (TVL) has dropped approximately $20 billion over the last month, indicating that funds are either being withdrawn or remaining inactive. Even with the surge in stablecoins, buying interest is minimal, and the market structure remains delicate.

On the derivatives front, Ethereum's Open Interest has not mirrored the significant liquidations of October, currently down by $5 billion compared to the $15 billion during that period. This reduction in liquidation pressure suggests that thin bids could still lead to short-term surges.

Ethereum

Source: Glassnode

Further highlighting the fragile market structure, many HODLers are facing losses. The data indicates that Ethereum’s net profit and loss stands deep in the red, with realized losses surpassing gains. On November 4th, the realized profit and loss hit -$626 million, marking an eight-month low.

In conclusion, despite indications of increased liquidity, Ethereum is not deviating significantly from its October post-crash environment. Currently, FOMO is absent across vital sectors, and as confidence wavers, the $3.2K support level appears precarious.