ETH Primed For a Short Squeeze to $4K After 13% Drop
Key takeaways:
Ether dipped to $3,055, wiping out $1.3 billion in long liquidations across exchanges.
Over $7 billion in short positions near $4,000 sets up potential for a sharp squeeze.
A hidden bullish divergence suggests a potential bottom around $3,000.
Ether (ETH) price dropped to $3,055 on Tuesday, extending its weekly decline by over 13%%. The move cleared out liquidity from the equal lows near $3,400, a zone that had attracted heavy leverage buildup. The next major liquidity pocket now sits between $3,000 and $2,800, levels that have previously acted as long-term structural supports.
On Binance, over $39 million in long positions were liquidated during this correction, the largest since Oct. 10. Across the market, total long liquidations have surpassed $1.3 billion, resetting the derivative landscape and creating a significant imbalance between long and short positions.
A review of market stages for ETH in 2025
On the weekly chart, Ether has cycled through the four classical market stages this year: decline, accumulation, markup, and distribution, according to CryptoQuant.
During the decline phase, ETH broke below multiple Anchored Volume-Weighted Average Price (AVWAP) levels, the dynamic support and resistance lines that measure the average price buyers paid from specific starting points. The drop under key AVWAPs anchored from the Trump Election Victory, first all-time highs (ATHs) of 2021 and 2024, and the July 2020 candle confirmed a seller-controlled market.
Following this, ETH entered a 10-week accumulation phase between $$2,000 and $3,000 before rallying through those same AVWAPs during its markup stage to reach an August yearly high. However, the recent distribution phase showed buyers losing control as ETH compressed between the AVWAPs from the ATH and $3,800, then broke lower on high volume early this week.
Currently, ETH is testing long-term AVWAP supports again, suggesting that the correction may be nearing exhaustion.
Related: Bitcoin and Ether ETFs bleed as Solana quietly pulls in ‘curious capital’
Ether short-squeeze setup is forming
With more than $7 billion in short position liquidity clustered around the $4,000 level, ETH’s current drop has primed the market for a potential short squeeze. If price momentum reverses near the $3,000 support, even a modest recovery could trigger cascading liquidations of over-leveraged shorts, accelerating a rebound.
Adding to the bullish setup, ETH’s daily chart displays a hidden bullish divergence between the price and the Relative Strength Index (RSI), where the price forms lower lows while the RSI holds equal lows, often signaling a trend reversal.
Yet, Crypto trader Daan Trades said,
“$ETH has fully rejected from that previous cycle high and is now back in that $2.8K–$4.1K. Good chance this chops around before another volatility spike.”
Related: Ethereum erases its 2025 gains: Is ETH price headed to $2.2K next?
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
