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DYDX price crashes 12% after dYdX auto deleverages profitable traders closing their trades

source-logo  fxstreet.com 05 January 2024 03:12, UTC
  • DYDX price is scaling a recovery rally after a market-wide crash that sent the altcoin 30% south.
  • It comes after dYdX V4 exchange experienced a system deleveraging event for the SUI-USD market following a large price movement.
  • DYDX could rise 15% amid growing momentum, and a strengthening recovery rally as indicated by the ADX indicator.
  • The bullish thesis will be invalidated if the altcoin records a daily candlestick close below the 200-day SMA at $2.350.

dYdX (DYDX) price suffered a double hit on Wednesday when the market crashed over the Matrixport report suggesting the denial of the spot Bitcoin exchange-traded funds (ETFs) by the US Securities and Exchange Commission. It happened that the platform suffered a system deleveraging event for SUI-USD market in the wake of a large price movement.

dYdX auto deleverages profitable traders

As cryptocurrency markets tried to cauterize the bleed from the Bitcoin and broader market crash on Wednesday, things went downhill for the dYdX ecosystem as the crash caused a price movement large enough to provoke a system deleveraging event for the SUI-USD market.

A system deleveraging event happens when a large price movement causes many accounts to be liquidated at once. For the dYdX ecosystem, after DYDX price crashed 30% to bottom out at $2.230, the liquidations caused the order book to run out of liquidity to close the affected accounts.

Consequently, the system began to look for profitable accounts to close against the liquidated accounts. Reportedly, this happened when SUI price was $0.69325.

The Yearn Finance (YFI) ecosystem also suffered after an attacker opened substantial 5x leverage long positions in YFI-USD in over 100+ wallets and purchased spot YFI to drive a 200+% climb in Yearn Finance price. They then used unrealized profits to open more YFI-USD positions, reaching a peak size of approximately $50 million.

Along with the market crash, the YFI price, just like DYDX price crashed 30%, with the attacker being unable to close their positions. In the absence of liquidity, most of the attacker’s remaining positions were liquidated at a loss.

dYdX has already implemented measures, comprising updates to risk controls with the view to prevent a repeat of the incident.

6/ To prevent similar situations in the future, we’ve implemented updates to risk controls on v3, including:

1️⃣ Revised margining in less-liquid markets

2️⃣ Initial margin fraction will adjust automatically for abnormal activity

3️⃣ Improved open-interest monitoring & alerting

— dYdX (@dYdX) January 3, 2024

DYDX price outlook as dYdX network recovers from a system deleveraging event

After a quick liquidity grab, DYDX price is poised for a recovery rally, steered by buying pressure due to the 200- and 100-day Simple Moving Averages (SMAs) at $2.350 and $2.687 levels respectively.

The bullish thesis is accentuated by the Relative Strength Index (RSI) and the Average Directional Index (ADX) indicators showing rising momentum (RSI tipping north) and growing uptrend strength (ADX rising) respectively.

Increased buying pressure could see DYDX price flip the $2.752 resistance into support, before using it as the jumping-off point to target the 50-day SMA at $3.119. Such a move would constitute a 15% climb above current levels.

Further north, the DYDX price could extend the gains to reclaim the late December highs of around $3.410. or in a highly bullish case, extend a neck higher into the supply zone ranging between $3.729 and $3.998. A break and close above its midline at $3.868 on the daily timeframe would confirm the continuation of the uptrend, with DYDX price likely to collect sell-side liquidity that resides above this order block.

The very ambitious case would see the DYDX price transform the supply barrier into a bullish breaker as it extends to tag the range high at $4.364. This would denote a 60% climb above current levels.

DYDX/USDT 1-day chart

On the flip side, if profit takers cash in after the breaking event from yesterday’s dip, DYDX could head lower, retesting the 200-day support. A break and close below this buyer congestion level at $2.350 would invalidate the bullish thesis, setting the pace for an extension south. The dire case could see DYDX price record a lower low below the Wednesday bottom at $2.230.

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