ETH Eyes $4K as $7B in Shorts Teeter on Liquidation After Sharp Drop to $3K
Ethereum (ETH) recently experienced a sharp 13% decline, plunging to around $3,055—a level not seen in weeks—triggering significant volatility in the market. This sudden move wiped out over $1.3 billion in long positions across major exchanges, including a staggering $39 million on Binance alone, marking the most severe liquidation event since October 10. The rapid correction has created a lopsided derivatives landscape, setting the stage for a powerful short squeeze that could catapult ETH back toward the $4,000 mark.
Currently, more than $7 billion in leveraged short positions are concentrated near the $4,000 region. If Ethereum manages to regain bullish momentum from the $3,000 support zone, a cascading wave of short liquidations could fuel a rapid price surge—potentially leading to a breakout rally well above the current levels.
From a technical standpoint, ETH’s weekly chart reveals a clear cycle through the classic four market stages: decline, accumulation, markup, and distribution. According to on-chain analytics, the decline phase began when ETH broke beneath several key Anchored Volume-Weighted Average Price (AVWAP) levels, which represent the average price buyers paid from important historical points such as the 2021 ATH, 2024 highs, and even the July 2020 candle. These breakdowns confirmed a strong sell-side grip on the market.
Following the decline, ETH entered a 10-week accumulation phase between $2,000 and $3,000, consolidating before rallying through those same AVWAPs during its markup stage—a movement that saw the token reach a local yearly high in August. However, the recent distribution phase saw momentum stall as ETH became trapped between resistance levels, eventually breaking lower under high volume, hinting at a shift in control from buyers back to sellers.
Now, with ETH once again testing the long-term AVWAP support zones around $3,000, analysts are watching closely for signs of a potential bottoming formation. Interestingly, a hidden bullish divergence has emerged on the daily chart, where ETH’s price has made lower lows while the Relative Strength Index (RSI) has formed equal lows. This pattern often precedes a trend reversal, suggesting that bearish pressure may be weakening.
Market sentiment has turned increasingly cautious, yet a reversal could happen quickly. Historically, short squeezes occur when a heavily shorted asset begins to rally, forcing traders to close their positions, which in turn adds upward pressure on the price. With over $7 billion in shorts sitting just above current levels, even a modest rebound could ignite such a squeeze, pushing ETH swiftly toward or beyond $4,000.
Adding to the bullish case, long-term structural support lies between $2,800 and $3,000—a range that has repeatedly served as a launchpad for previous rallies. If historical patterns hold true, Ethereum’s current consolidation could be laying the groundwork for its next leg upward.
Looking forward, Ethereum’s price action in 2025 might mirror its previous market cycles. Analysts are considering the possibility of a renewed accumulation phase, particularly if ETH maintains support above $2,800. This could be followed by another markup phase, especially if macroeconomic conditions—such as interest rate changes or ETF inflows—support a broader crypto market recovery.
Another factor worth monitoring is Ethereum network activity. Historically, spikes in network usage, DeFi total value locked (TVL), and NFT transactions have often preceded major price rallies. Should on-chain metrics begin to trend upward in the coming weeks, they could provide further confirmation that the current downturn is temporary.
Institutional interest also remains a crucial catalyst. With Ethereum ETFs already introduced in some markets and growing anticipation for broader adoption, any positive regulatory developments could accelerate capital inflows. If institutional players begin accumulating at current levels, this could further intensify the pressure on short sellers.
Moreover, the broader altcoin market seems to be stabilizing. Assets like Solana have started attracting capital quietly, which could signal a rotation back into riskier crypto assets. If altcoins begin a recovery phase, ETH—as the second-largest cryptocurrency—often leads or follows closely, amplifying any bullish momentum.
It’s also important to consider macroeconomic indicators. If the U.S. Federal Reserve signals a pause or reversal in interest rate hikes, risk assets—including cryptocurrencies—could benefit from renewed investor appetite. In such a scenario, Ethereum could regain traction more rapidly than expected.
In conclusion, Ethereum’s recent drop to $3,000 may not signify the start of a prolonged bear market, but rather a necessary reset that opens the door for significant upside. With a massive imbalance between long and short positions, historical support levels being retested, and technical indicators flashing early reversal signs, ETH appears poised for a potential explosive move—especially if a short squeeze materializes. Traders and investors alike should keep a close eye on price behavior around $3,000, as it may serve as the launchpad for Ethereum’s next major rally.