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Will high bear pressure put overleveraged longs at risk of cascading liquidations?
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Cardano Futures volatility cuts both ways – Bullish or a risk if conditions worsen.
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There is now high FUD as ADA nears pre-election levels.
As Cardano struggles against heightened volatility, overleveraged positions face potential liquidation, marking a critical point for investors.
Cardano under derivatives pressure
On 6 April, a sharp red candlestick marking a 12.38% intraday move on ADA’s 1D chart aligned with 69.36% long exposure on Binance Futures. Hence, when BTC broke support, ADA followed, triggering a $12.73 million long squeeze.
Now, Open Interest (OI) has dropped 17.73% to $571.36 million, signaling aggressive position unwinding and increasing sell-side liquidity. If unmet by bullish demand, this unwinding could amplify further squeezes.
What are the odds? At the time of writing, Binance Futures’ 12-hour long/short ratio was skewed, with 73.37% of positions still long. Meanwhile, WhiteBIT’s ratio leaned 92% long, adding $16.18 million in directional exposure.
Source: Coinglass
Notably, ADA/USDT perps averaged 65% long throughout March, yet ADA closed the month flat after tapping $1.14 on 2 March. Since then, sustained selling pressure has kept Cardano in a downtrend.
Consequently, with derivatives-driven liquidity mounting and no significant demand stepping in, millions have been wiped out in long liquidations. If this pattern holds, ADA could be on track to revisit pre-election levels.
Investor psychology – Analyzing the FUD factor
At press time, Cardano held a 53% gains from its election day open at $0.33 on 6 November 2024. And yet, with market-wide FUD intensifying, retail investors are more likely to panic sell – Either to breakeven or secure gains before further compression.
Meanwhile, whales are positioning differently. ‘Buying the FUD’ could validate $0.50 as a strong local bottom. And, given the current setup, the odds might favor accumulation.
Notably, the largest ADA holders (100 million–1 billion ADA) have scooped up 120 million tokens since 6 April – Right after ADA’s sharp 12% drop to $0.55.
Source: Santiment
Overall, investor sentiment remains divided. If deep-pocketed players keep absorbing sell pressure, a strong bounce from $0.50 could drive ADA back towards $0.58–$0.60 in the near term.
Conversely, with millions in leveraged longs hanging in the balance, a breakdown below $0.50 could fuel liquidation-driven sell-offs. All eyes remain on whale positioning – Whether they absorb sell-side liquidity across spot and futures markets will be key to dictating Cardano’s next major move.
Conclusion
In summary, Cardano faces a critical juncture as aggressive long positioning clashes with potential bearish pressures. The dynamics of overleveraged trading and investor psychology will be pivotal in shaping its future performance. With significant buy-side liquidity needed to stabilize prices, traders must stay vigilant of market signals and liquidity trends.
