Market sentiment turned to extreme fear on December 1st. Short positions dominate the derivatives market. Several major altcoins are showing severe imbalances in their liquidation maps, which could trigger a new record for liquidations.
The analysis below highlights the underlying factors that may cause the market to deviate from short-term expectations during the first week of December.
1. Ethereum (ETH)
ETH’s 7-day liquidation map shows that the cumulative liquidations from short positions are significantly higher than the cumulative liquidations from long positions. This indicates that traders are actively shorting ETH.
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If ETH recovers to $3,150 this week, the cumulative short interest could exceed $4 billion.
What risks should short sellers consider? On-chain data on ETH exchange balances can be an important signal.
According to CryptoQuant data, ETH supply on exchanges has fallen to an all-time low of 16.6 million ETH. Despite the drop in ETH’s price, the trend of withdrawing ETH from exchanges has accelerated over the past month.
“With ETH foreign exchange reserves reaching record lows, we believe Ethereum will lead the next market,” predicted investor Momin.
While most analyzes point to further downside, continued accumulation reflected in reduced exchange supply could soon amplify scarcity as selling pressures abate. This could cause a sudden recovery in ETH.
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2. Solana (SOL)
Similar to ETH, SOL also shows clear imbalances in its liquidation map. Traders had been actively shorting SOL in early December.
If SOL recovers to $145 this week, the cumulative short interest could exceed $1 billion.
Is there any basis for SOL to recover this week? On-chain indicators reflect positive signals. Nansen reported that Solana continued to lead in the number of transactions this week.
In prediction markets, many investors still expect December’s price range to be between $150 and $200. Additionally, the US-based SOL ETF has seen inflows for the fifth consecutive week.
BitMEX co-founder Arthur Hayes also recently stated that only Ethereum and Solana have the institutional use cases needed for long-term survival.
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3.XRP
XRP’s 7-day liquidation map shows that short-term activity is predominant. If XRP recovers above $2.30 this week, the cumulative short interest could exceed $500 million.
Short sellers must consider several factors.
These dynamics have many analysts predicting that XRP could reach $2.6 this month. Such a move would have serious implications for short sellers.
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Increase in stablecoin supply suggests potential for market recovery
Another factor worth considering is that the supply of stablecoins is expanding again.
The combined market capitalization of USDT, USDC, DAI, and FDUSD reached a new high of $267.5 billion in early December, according to data from Coinglass.
The increase in stablecoin supply suggests that market liquidity may increase this month. Analyst Ted pointed out that this upward trend ends a four-week decline in stablecoin market capitalization.
“Stablecoin MCap is on the rise again. It has been down for four consecutive weeks, which also explains the reason behind the crash. A rise from here would mean new liquidity flowing into the crypto market, which is good for BTC and Alts,” Ted said.
If the market unexpectedly recovers, the three major altcoins mentioned above collectively account for $5.5 billion in potential liquidations.
If a full-fledged recovery occurs, a new liquidation record could be set. Investors may need to consider all of these factors to minimize risk to their positions.
