Ethereum (ETH) price drops below $1,800, testing the limits of the DeFi market

The second-largest cryptocurrency dropped by nearly 10% on Monday, falling to $1,820. This marks its lowest price point since December 2023.

Ethereum (ETH) price has faced strong market pressure recently, leading to a nearly 10% drop on Monday to $1,820. This pushed the second-largest cryptocurrency to its lowest level since December 2023.

The sudden fall has put decentralized finance (DeFi) loans at risk, especially given Ethereum’s role as key collateral for many loans on these platforms.

A major concern is a $74 million loan on the Sky (formerly Maker) platform that was at risk as it was backed by 65,680 ETH tokens, valued at nearly $130 million earlier on Monday.

The loan’s liquidation level sat just above $1,900. When ETH dropped below this threshold, it put the entire loan at risk of being liquidated.

However, blockchain data shows that the borrower acted swiftly. They withdrew 2,000 ETH (roughly $4 million) from cryptocurrency exchange Bitfinex and added it to their collateral.

Moreover, as prices continued falling, the borrower withdrew $1.6 million in USDT stablecoin from Binance, converted it to DAI, and used it to reduce their debt to $73.1 million.

Despite these efforts, danger remains as the loan’s new liquidation level now stands at $1,836, still very close to ETH’s recent trading price of around $1,870.

This loan isn’t the only one facing difficulties. According to DefiLlama data, $13.6 million worth of loans could face liquidation if ETH hits $1,857. Another $117 million in loans would be liquidated at $1,780.

Looking at the broader picture, if ETH falls another 20%, about $366 million in debt could face liquidation.

These liquidations could create a downward spiral. When loans get liquidated, their collateral is sold off, which in turn creates more selling pressure on ETH’s price.

Investor sentiment towards Ethereum has soured, according to Glassnode data. Only 50% of Ethereum holders are currently in profit, compared to 82% at the start of the year.

Technical Analysis

Technical analysis suggests that ETH is performing poorly. It has traded below the Ichimoku Cloud since January 25, which may continue to push the price downward.

Some analysts suggest that $1,700 is the next support level to watch out for. If this level fails to hold, they warn of “catastrophic liquidations” that could drive prices even lower, with some targeting $1,300.

However, not all signals are bearish. Last week saw $1.8 billion worth of ETH move from exchanges to private wallets, marking the largest outflow since December 2022.

Such movements usually indicate long-term holding plans rather than preparation for selling, which could indicate that some investors see the current prices as a buying opportunity.

If demand increases, optimistic analysts suggest that ETH could eventually recover to $4,045, which would represent a 120% gain from current levels. But with bearish sentiment dominating the market, such a recovery seems unlikely in the near term.