Ethena (ENA) has faced significant bearish pressure, with its price tumbling 14% in the past 24 hours and extending its seven-day decline to 21%. At press time, ENA was trading at $0.715, reflecting the ongoing market downturn. However, a potential short squeeze scenario could be setting the stage for a surprising price recovery.
Surge in Short Positions: A Setup for a Reversal?
The futures market has witnessed an unusual development as ENA’s Funding Rates plunged to -42%. This dramatic decline indicates a rising demand for short positions, where traders are betting on further price declines. While this may seem like a bearish indicator, it also presents the possibility of a short squeeze.
A short squeeze occurs when an asset’s price unexpectedly surges, forcing short sellers to close their positions. This leads to forced buying, which increases demand and drives prices higher. Given the extreme level of short interest in ENA, even a small upward movement could trigger liquidations and propel the price into a strong rally.
Technical Analysis: Bears Remain in Control
Despite the potential for a bullish reversal, technical indicators suggest that the downtrend remains dominant. ENA is currently trading within a descending parallel pattern on the daily chart. The altcoin has breached the midline of this pattern, with a further drop below the lower trendline likely to accelerate losses.
Additionally, the Relative Strength Index (RSI) has dipped to 35, marking its lowest point since September. This reflects the increased selling pressure in the market. The On-Balance-Volume (OBV) indicator also confirms that traders are not buying the dip, as selling pressure continues to outweigh buying activity.
For ENA to initiate a meaningful recovery, it must first break past the resistance at the 0.5 Fibonacci level ($1.017). A successful breakout above the upper trendline could push the price toward $1.31, setting the stage for a sustained uptrend.
Network Activity Hits a Two-Month Low
Apart from technical indicators, on-chain data reveals another concerning trend: declining network activity. According to Santiment, daily active addresses on the Ethena network have dropped to 1,031, marking the lowest level in two months. This decline in user engagement could further pressure ENA’s price, as reduced activity often correlates with negative market sentiment.
Conclusion: Rebound or Continued Downtrend?
While ENA’s -42% Funding Rate signals extreme bearish sentiment, it also creates the perfect conditions for a short squeeze. If a sudden price spike forces short sellers to close positions, ENA could see a sharp rebound. However, unless buying pressure returns and network activity improves, the current downtrend may persist.
Traders should closely monitor ENA’s key resistance levels and market sentiment to determine the likelihood of a breakout. If bulls regain control, a move toward $1.31 could be on the horizon, but failure to reverse the trend might lead to further declines.
