Why Ethereum Is Plunging Today
Key Points
Spot Ethereum ETFs have been seeing significant outflows over the past day, driving retail investor concerns around the world's second-largest token.
Liquidations data in the perpetual futures market is also pointing in the wrong direction for bulls.
Let's dive deeper into what the numbers suggest and whether today's move is a one-off or could continue.
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Ethereum's (CRYPTO: ETH) status as the world's second-largest cryptocurrency means a lot of scrutiny on this top digital asset, not only from retail investors but also from those on the institutional side of the investing world who are placing big bets on this sector overall.
Today's price action in Ethereum specifically has been notable, with Ethereum dropping 2.1% since 4 p.m. ET yesterday as of 2 p.m. ET today. This daily drop was as high as 3.8% earlier in today's session.
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The fact that Ethereum has made back some of these losses is certainly good news for long-term investors. With that said, let's dive into what's driving today's decline and where Ethereum could be headed from here.
Key factors investors are watching with Ethereum's decline today
Source: Getty Images.
I think one of the most pertinent factors driving investor interest (or lack thereof) in Ethereum is institutional investment via spot exchange-traded funds (ETFs). Over the course of the past day, more than $1 billion exited spot ETFs tracking Ethereum and Bitcoin, with the vast majority coming out of Bitcoin ETFs. That said, new rival spot ETF offerings featuring XRP have taken off and could be sucking liquidity out of spot ETFs tracking the aforementioned two tokens.
We'll have to see on this front.
Additionally, it does appear that liquidations data for Ethereum perpetual futures contracts (derivatives used by investors to place long or short bets on the rise and fall of this token) are pointing toward more long positions being destroyed, leading to stark selling pressure for the No. 2 cryptocurrency by market capitalization.
Today's long liquidations have been rather high, with roughly $2.7 million in long derivatives contracts liquidated over the past 24 hours. In contrast, just a little more than $1 million of short derivatives contracts have been liquidated. This one-sided move has led to continued selling pressure, so we'll have to keep an eye on these key metrics and see what, if anything, changes.
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Chris MacDonald has positions in Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.
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