Ethereum [ETH] has experienced a highly tumultuous period recently. After hitting a low of $2,160 – its lowest in five months – the primary altcoin has managed to bounce back and is currently valued at $2,760. Despite this recovery, there are concerns about potential market instability due to changes in derivative market dynamics.
Decline in Ethereum’s Leverage Ratio by 15%
The significant liquidations in the ETH market earlier this week led to a notable decrease in open positions and subsequent reduction in leverage. Over the past couple of days, Ethereum’s estimated leverage ratio fell by 15%, dropping from 0.64 to 0.54, marking its lowest point in six weeks. This decline was accompanied by a drop in open interest to $22 billion, the lowest level seen since late November as reported by Coinglass.
Historically, whenever the leverage ratio of ETH has decreased, the price tends to follow suit. If past trends are any indication, Ethereum could potentially face further declines until derivative traders display renewed interest and confidence in the market direction.
Large-Scale Withdrawal of 375K ETH from Derivative Exchanges
Further evidence of reduced speculative activity around Ethereum can be observed in the significant withdrawal of 375,000 ETH from derivative exchanges in the last three days. These consistent withdrawals signal that traders are opting to reduce risks. Additionally, these withdrawals coincided with a surge in inflows to spot exchanges, indicating that traders are closing their leveraged positions and selling ETH in the spot market.
This shift in positioning may contribute to bearish pressure on ETH due to increased selling activity. However, it also signifies a decrease in the risk of liquidation, leading to reduced market volatility.
Potential Impact of Bearish Crossover on ETH’s Downtrend
A bearish crossover was recently observed on Ethereum’s one-day chart when the 50-day Simple Moving Average (SMA) crossed below the 100-day SMA. This crossover signals a strengthening downward trend. Despite this bearish signal, the Chaikin Money Flow (CMF) remains in a bullish zone, suggesting continued strong buying pressure.
Traders should remain vigilant for a potential drop towards uncollected liquidity around $2,160. Ethereum could retest this level if sellers take control and demand for buying weakens.
To counteract the bearish pressure, Ethereum must successfully break past the resistance at the 200-day SMA ($2,973). Historically, breaching this resistance level has been favorable for ETH’s price. Another critical resistance to watch for is at the 50-day SMA ($3,304), with a breakout potentially sparking a strong bullish sentiment.