Ethereum’s $900M Liquidation Event Marks Biggest Market Shakeout Since 2021

Ethereum just faced its most brutal liquidation storm in four years—and the aftershocks are rewriting crypto risk management playbooks.

The $900 Million Reckoning

Liquidation cascades hit DeFi protocols like algorithmic dominoes. Margin calls triggered automated sell-offs that sliced through support levels traders thought were bulletproof. The ecosystem's leverage mechanisms—once hailed as financial innovation—became their own worst enemy.

Market Mechanics Under Microscope

Flash crashes exposed structural vulnerabilities in lending protocols. Over-collateralization requirements proved insufficient when volatility spiked beyond historical models. Decentralized exchanges saw liquidity pools evaporate faster than traders could say 'slippage.'

Institutional Fallout

Hedge funds playing the basis trade got caught in the crossfire. Their sophisticated arbitrage strategies collapsed when funding rates went haywire. Meanwhile, traditional finance veterans are probably sipping champagne while muttering 'told you so' about crypto volatility.

The silver lining? Every market reset burns out weak hands and strengthens core infrastructure. Ethereum's survived worse—and each crisis forges tougher protocols. Just maybe avoid checking your portfolio for a few days.

ETH also saw the largest nominal value liquidation since May 2021. This time, the market proved more resilient, as the last time a liquidation of this size happened, ETH wiped out 45% of its market price. The current round of liquidations is seen as significant, but the prices have limited their drop so far.

Most of the available ETH liquidity was flushed, and prices started to recover from the recent lows. Based on Alphractal data, both BTC and ETH are still not done with their deleveraging and may see additional liquidations. 

DeFi liquidations also spiked, though with a smaller footprint. In the past day, nearly $22M were liquidated on crypto loans, where ETH and WETH were used as collateral. 

Whales sold ETH during the panic

During the latest liquidation event, ETH had relatively tame spot selling volumes, though some whales decided to sell either strategically or in panic mode. 

One whale managed to place over $72M in ETH just before the market crashed, sending the tokens to Binance. The whale is also unwrapping AETHWETH from AAVE and turning it into regular ETH, which can also be sold more easily. 

Another whale sold 1,000 ETH earlier on Monday, just as the losses were accelerating. Additional on-chain data points to potential selling of ETH originating from Binance’s wallets, as a way to attack long positions. ETH open interest is still above $27B, with the potential for additional liquidations in the case of a downturn. 

The biggest factor behind the drop of ETH was liquidations on Binance. Whale selling from multiple wallets triggered cascading liquidations, affecting all highly Leveraged long positions. 

Based on the liquidation positions available, ETH can still dip to $4,100 to attack traders going long. A recovery is also possible, with new short liquidity accumulating at the $4,400 level. 

Can ETH recover to a higher range? 

ETH is now at a crossroads, bouncing from its recent lows. One of the short-term predictions is for ETH to attempt to regain a new all-time high and continue above $5,000. 

During previous downturns, ETH has recovered its general trend within hours. Following Monday’s liquidations, ETH climbed above $4,200, as the market retained its momentum. 

Soon after the liquidations, both crowd money and smart investors had a neutral sentiment, with a slightly bearish outlook.

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