Recent reports suggest that Ethereum is at risk of a significant liquidation event. According to crypto analyst Nicholas Merten, there is a high chance that Ethereum (ETH) could drop to much lower levels due to this event.

Merten, who is the host of DataDash and has over 511,000 subscribers on YouTube, warns that over-leveraged traders who used DeFi protocols and deposited ETH as collateral may be forced to close their positions if Ethereum prices dip.

Merten cautions that this sell-off could trigger a significant downward move for ETH.

Decreasing ETH value

The decrease in Ethereum’s value could have negative consequences for these loans.

The primary purpose of these DeFi protocols is for individuals to offer their ETH as collateral for a short-term loan, receiving a certain amount of stablecoins in exchange.

This allows them to purchase more Ethereum and speculate on its future value. Ultimately, they aim to pay off the loan and retrieve their collateral.

However, if the value of Ethereum decreases too much and the debt-to-loan ratio becomes too high, there may not be enough collateral to cover the debt.

In this scenario, a liquidation event would occur, unless the loan can be refinanced or more stablecoins are added to pay off the loan. Unfortunately, many participants may not have the necessary funds to do so.

Ethereum price prediction is out

In a recent blog post, Arthur Hayes, co-founder of BitMEX, expressed his belief that the use of artificial intelligence (AI) technology could greatly benefit the price of Ethereum (ETH).

He envisions a future where AI applications create decentralized autonomous organizations (DAOs) to facilitate smart contracts, and he sees Ethereum as the ideal platform for this scenario due to its widespread use as a decentralized virtual machine.

Regarding the price of Ethereum today, at the moment of writing this article, ETH is trading in the red and the king coin is priced at $1,835.

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