The price of ETH, Ethereum’s native currency, sunk to a month low of $1,085 on November 22, 2022, causing more headache for short-term bulls. We’ll compare the price action of ETH against other heavy-weights like BTC and ATOM to understand the performance. Also we’ll take a look at on-chain data to propose a cause for ETH’s price action.
We have below the price action of ETH against BTC, and as you can see, ETH fell steeply against BTC on the 20th of November, 2022, and finally reaching a low of 0.06925 on November 21. ETH will try to rebound but will see a similar low on November 22, 2022. ETH is currently trying to regain momentum as it trades past 0.07BTC.
Down here, we can see ETH’s actions against ATOM - the native currency of the Cosmos hub. ETH’ action against ATOM is almost the opposite of BTC. ETH gained against ATOM on November 21, but slid on November 22, and slipped more on November 23. But the idea here is that, ETH slipped a lot within the last few days. What might be the cause?
With access to on-chain data, there are two places we can look as the cause of ETH’s price fall as suggested by basic economics. These are sell pressure, and liquidations.
The price of an asset in any market is determined by supply (sell) and demand (buy) - if selling exceeds the buying, the value of the asset falls. Also, before one can take a regular loan, there must be backing collateral which grantees that the lender can claw back some funds in case of loan default. When the collateral falls below a certain price, they are sold to make sure that lenders are whole. This process is what is known as liquidation. Excessive liquidations can cause the fall in price of assets.
The selling pressure of ETH (on-chain) in volume, over the past 5 days, had constantly exceeded $1billion. On November 22, 2022, the sell pressure of ETH exceeded $4.8billion. ETH liquidations on Aave has bee less the $10k in the last few days, but that on November 21 was up in $60,000.
Did liquidations on November 21, 2022 contribute to ETH’s selling pressure and subsquent price fall on November 22? Maybe, if you consider other lending markets and off-chain activities such as short sellers on centralized exchanges.