The Impact of US-China Relations on Ethereum Dynamics

Last Friday, trade tensions between the US and China escalated dramatically, leading to the largest liquidation event in cryptocurrency history.

As a consequence, Ethereum, the second-largest digital asset, experienced a significant decline in value, breaching critical technical support levels, which led to a downturn in the derivatives market.

A Technical Overview of Collapse and Recovery

According to an assessment by CryptoQuant analyst _OnChain, the events unfolded over ten specific areas on a 30-minute chart. In the initial zones, buyers maintained control, with prices above the Exponential Moving Average (EMA 96), Simple Moving Average (SMA 240), and the average weighted price (AVWAP) of the October uptrend.

However, early signs of trouble arose, and the market started showing weakness, with price movements indicating sellers had taken charge.

A crucial turning point occurred with China introducing new export controls on rare earth minerals.

Significant losses were reported immediately following comments from U.S. President Donald Trump on Truth Social that increased tensions further, resulting in a liquidation cascade that eliminated over $19 billion in leveraged positions and affected more than 1.6 million traders.

Nonetheless, analysts from The Kobeissi Letter observed a potential misinterpretation of China’s actions, leading to a market recovery, supported by conciliatory remarks from Vice President JD Vance, which restored confidence and prices.

The Aftermath and Market Reset

The Ethereum derivatives market suffered greatly, with Open Interest dropping from $33 billion to approximately $18 billion, reflecting a contraction of 45%. This harsh correction paved the way for institutional accumulation opportunities amidst the turmoil, strengthening support levels and causing gains for ETH back up to around $4,100.

The Ethereum derivatives sector is currently showing signs of recovery, but the recent volatility underscores the sensitivity of the cryptocurrency market to geopolitical events.