Famous cryptocurrency analyst and host of DataDash, Nicholas Merten, has warned crypto investors that Ethereum (ETH), the king of altcoins, could experience a significant liquidation that could drive its price to very low levels.
Pay Attention to the Debt-to-Credit Ratio
According to Merten, investors who have highly leveraged positions and use their ETH as collateral in decentralized finance (DeFi) protocols may be forced to close their positions if the price of Ethereum starts to drop. The analyst warned that this situation could be a trigger for a significant decrease in ETH’s price.
The main concern raised by the analyst is the debt-to-credit ratio. If the value of Ethereum as collateral decreases significantly, this ratio will become unsustainable. Investors will not have enough collateral to repay their debts, resulting in a mass liquidation event unless they can refinance their loans.
Merten warned that many investors may not be able to refinance and could face a significant liquidation risk.
Two Possible Scenarios for Ethereum
Merten emphasized that for Ethereum to surpass the $2,000 resistance level and confirm the breakout in the rising triangle formation, it needs more liquidity. If this resistance is not broken, Merten expects ETH to retest the $1,600 level. This scenario presented by Merten could trigger a series of liquidations and push ETH to even lower levels, creating a gradual impact.
Despite existing measures such as Ethereum Improvement Proposal (EIP) 1559 and inflation reduction, Merten believes that these may not be sufficient to save Ethereum from such a price drop. Merten’s prediction of a major liquidation paints a warning picture for the short-term future of Ethereum, highlighting the high volatility and risks associated with excessive borrowing in the DeFi market.
At the time of sharing his prediction, ETH was trading at $1,857 and currently stands at $1,831, recording a 1.98% decrease in the last 24 hours.
