Price Drops and Derivatives Market Cools

The Ethereum derivatives market shrank by 45%, with open interest collapsing from $33 billion to $18 billion.

Last Friday, trade tensions between the US and China suddenly escalated, triggering the largest cryptocurrency liquidation event in history.

As a result, Ethereum, the second-largest digital asset, saw its value drop significantly, breaking important technical support levels and causing a big dip in the derivatives market.

A Technical Narrative of Breakdown and Recovery

According to an assessment by CryptoQuant analyst _OnChain, the story unfolded across ten distinct areas on a 30-minute chart. In zones 1 through 3, buyers were still in charge, and the price stayed above the Exponential Moving Average (EMA 96), the Simple Moving Average (SMA 240), and the structural volume-weighted average price (AVWAP) of the uptrend in October.

However, the first signs of trouble emerged in areas 4 and 5. Before any major conflict headlines, the market displayed weakness, with the price closing below the EMA 96, SMA 240, and the uptrend’s structural AVWAP.

Critically, in area 5, these same indicators, which had previously functioned as support, were tested and held as resistance. This technical failure confirmed that sellers had seized control of the market. The catalyst then hit in area 6, corresponding with China’s announcement of new export controls on rare earth minerals.

The market technician noted that the real damage occurred in areas 7 and 8, which aligned with posts by U.S. President Donald Trump on Truth Social, threatening China with a new set of substantial tariffs. The price closed well below all of the support levels mentioned, including the AVWAP that was based on the last major low from September 25. It is here that the liquidation cascade kicked off, wiping off over $19 billion in leveraged positions and hurting more than 1.6 million traders.

However, signs of revival emerged in sections 9 and 10 following the trade conflict easing. Analysts from The Kobeissi Letter indicated that the U.S. may have misinterpreted China’s export controls, which were not a full ban. Subsequently, Trump made another social post, with Vice President JD Vance making conciliatory comments of his own, to bring immediate relief. Crypto prices then climbed back up, with ETH closing above all AVWAPs, the EMA 96, and SMA 240, confirming that buyers had returned to power.

You may also like:

The Derivatives Fallout and Structural Reset

The impact on Ethereum’s derivatives market was severe. The _OnChain report notes that Open Interest (OI), which represents the total value of unsettled derivatives contracts, collapsed from a record high of $33 billion on August 22 to approximately $18 billion following the major drop on October 10.

This 45% contraction illustrates a dramatic cooling in speculative activity as leverage was forcibly removed from the system.

Still, the deleveraging, while violent, may have created a healthier foundation as institutional investors used the downturn as an accumulation opportunity. Data from CryptoQuant showed Ethereum’s Coinbase Premium Index, which tracks U.S. institutional demand, hit its highest level this year during the sell-off. This institutional buying, which also happened with Bitcoin, helped set a support floor, pushing ETH’s price back up to around $4,100 for a while.