How the US-China Conflict Turned Ethereum Upside Down: Price Drops and Derivatives Market Cools Down

The Ethereum derivatives market shrank 45%, with open interest falling from $33 billion to $18 billion.

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

As a result, Ethereum, the second largest digital asset, saw its value drop significantly, breaching key technical support levels and causing a major dip in the derivatives market.

A technical story about demolition and recovery

According to an assessment by CryptoQuant analyst _OnChain, the story is unfolded divided into ten different areas on a 30-minute chart. In zones 1 through 3, buyers were still in charge and price remained above the exponential moving average (EMA 96), simple moving average (SMA 240) and structural volume weighted average price (AVWAP) of the October uptrend.

However, the first signs of trouble emerged in areas 4 and 5. Before any major conflict hit the news, the market showed weakness, with the price closing below the EMA 96, SMA 240 and the structural AVWAP of the uptrend.

Crucially, in area 5, the same indicators that had previously acted as support were tested and held as resistance. This technical glitch confirmed that sellers had taken control of the market. The catalyst then struck in Area 6, which corresponded with China’s announcement of new export controls on rare earth minerals.

The market technician noted that the real damage occurred in areas 7 and 8, which aligned with US President Donald Trump’s messages on Truth Social, threatening China with a new set of substantial tariffs. The price closed well below all support levels mentioned, including the AVWAP which was based on the last major low of September 25. It is here that the liquidation cascade kicked off, wiping out more than $19 billion in leveraged positions and affecting more than 1.6 million traders.

However, following the easing of the trade dispute, signs of revival emerged in Sections 9 and 10. Analysts at The Kobeissi Letter indicated that the US may have misinterpreted China’s export controls, which did not amount to a full ban. Trump then made another social post, with Vice President JD Vance himself making conciliatory comments, seeking immediate relief. Crypto prices then rose again, with ETH closing above all AVWAPs, the EMA 96 and SMA 240, confirming that buyers had regained control.

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The consequences of derivatives and structural reset

The impact on the Ethereum derivatives market was severe. The _OnChain report notes that Open Interest (OI), which represents the total value of unsettled derivatives contracts, has collapsed from a record high of $33 billion on August 22 to around $18 billion after the big drop on October 10.

This 45% contraction illustrates a dramatic cooling of speculative activity as leverage was forcibly removed from the system.

Still, the deleveraging, while violent, may have created a healthier foundation as institutional investors used the recession as an accumulation opportunity. Data from CryptoQuant showed that Ethereum’s Coinbase Premium Index, which tracks US institutional demand, hit all-time highs during this year’s sell-off. This institutional buying, which also occurred with Bitcoin, helped create a support floor, pushing ETH’s price back up to around $4,100 for a while.