Ethereum's collapse could create a bounce back zone with bullish opportunities.

The price of Ethereum has experienced a sharp fall in the past 24 hours, from nearly 4,300 USD down to around 3,400 USD, before partially recovering to about 3,800 USD. This development coincides with nearly 19 billion USD being liquidated in the crypto market, marking one of the largest sell-offs of the year, mainly due to trade disputes between China and America. The sudden drop has wiped out many long positions on major exchanges, forcing traders to rush into hedging in the futures market.

Although the price of Ethereum has fallen by about 13% at the time of writing, initial signs from the futures market and technical charts suggest that the sell-off may have gone too far — and a recovery may be forming beneath the surface.

A downtrend is forming, but derivatives are showing signs of recovery.

Large crashes like this rarely start from the spot market. They usually originate from the derivatives market, where high leverage can amplify both profits and losses.

The funding rate of Ethereum — the fee that traders have to pay or receive to maintain perpetual futures contracts — has reversed from +0.0029% on October 9 to -0.019% on October 11.

A negative funding rate indicates that traders setting up short positions are paying traders who are going long, which suggests that the majority of open contracts currently are betting on further price declines.

Funding Rates ETH turned negative | Source: CryptoQuantThis imbalance, although seemingly negative on the surface, could also create a recovery setup. When short positions become overloaded, even a small price bounce can trigger a short squeeze, forcing traders to buy back their positions and pushing the price higher.

A second derivative indicator that supports this view is the buy ratio of the recipient, which measures whether aggressive trades lean towards buying or selling, having recovered from 0.47 to 0.50 in the past 24 hours.

This change indicates that buyers are currently balancing with sellers in terms of volume — an early sign that a liquidation may be about to occur.

Ethereum buyers suggest that buying sentiment is increasing | Source: CryptoQuantThe last time this ratio reached a similar level (a local peak) on September 28, Ethereum increased by 13%, from 4,140 USD to 4,680 USD.

The hidden divergence reinforces the argument for Ethereum price recovery

The price chart of Ethereum further reinforces this argument. On the daily timeframe, Ethereum shows a hidden bullish divergence — a pattern that forms when the price creates higher lows while the Relative Strength Index (RSI) creates lower lows.

RSI measures momentum on a scale from 0 to 100. When it diverges from price in this way, it signals that sellers are losing strength, even if the price has not fully recovered.

Ethereum price divergence | Source: TradingViewBetween August 2 and October 10, the same setup appeared. The last time Ethereum gave this signal, from August 2 to September 25, it increased nearly 25% within a few days.

If Ethereum holds above 3,430 USD (important support), the current recovery setup is still valid. Breaking through 3,810 USD (another important support) and 4,040 USD will confirm the short-term recovery, with a target possibly near 4,280 USD — about 13% higher than the current level.

Ethereum Price Analysis | Source: TradingViewHowever, if the price falls below 3,350 USD, this structure will be invalidated and momentum will return to the bears. Currently, the Ethereum price drop may have created its own recovery zone.

With the short-selling positions heavily saturated and the technical strength quietly returning, a recovery to 4,280 USD seems increasingly feasible if buyers can defend the key support. All that is needed is a daily candle to close above 3,810 USD for the strength to return.

Mr. Teacher