Ethereum Plummets 10% to $1,820, Risking $366M in DeFi Loans

Ethereum, the second-largest cryptocurrency by market capitalization, experienced a significant drop in price on Monday, falling to $1,820. This decline marks the lowest price point for Ethereum since December 2023, representing a nearly 10% decrease from its previous levels. The sudden drop has raised concerns about the stability of decentralized finance (DeFi) loans that use Ethereum as collateral.

The most pressing concern involves a $74 million loan on the Sky platform, which is backed by 65,680 ETH tokens worth nearly $130 million. The loan's liquidation level is just above $1,900, and when Ethereum's price fell below this threshold, the loan became at risk of liquidation. In response, the borrower took swift action by withdrawing 2,000 ETH from the crypto exchange Bitfinex and adding it to their collateral. Additionally, as prices continued to fall, 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, the loan's new liquidation level stands at $1,836, which is still very close to Ethereum's recent trading price of around $1,870.

This particular loan is not the only one at risk. According to data from DefiLlama, $13.6 million worth of loans face liquidation if Ethereum hits $1,857, and another $117 million in loans would be liquidated at $1,780. If Ethereum falls another 20%, approximately $366 million in debt could face liquidation. These liquidations could create a downward spiral, as the collateral from liquidated loans would be sold off, creating more selling pressure on Ethereum's price.

Market data indicates a shift in investor sentiment, with only 50% of Ethereum holders remaining in profit, down from 82% at the start of the year. Technical analysis suggests a bearish outlook, as Ethereum has traded below the Ichimoku Cloud since January 25, indicating a potential continuation of the downtrend. Some analysts point to $1,700 as the next support level, with warnings of "catastrophic liquidations"