Over the past couple of weeks, Ethereum [ETH] has witnessed significant price fluctuations, with its value dropping from $4109 to $3219. This period of high price volatility has resulted in ETH trading sideways without a clear trend.
Analysts have begun discussing Ethereum’s performance heading into 2025. Cryptoquant analyst Sun Moon has expressed optimism regarding ETH’s performance in the first quarter of 2025, attributing it to overall market stability.
Decline in Ethereum’s Long Positions by Liquidity Providers
Recent data from CryptoQuant indicates that Ethereum’s liquidity providers have been decreasing their long positions. A reduction in long positions by entities and traders supplying capital to ETH often signals a shift in market sentiment.
When liquidity providers decrease their exposure, it may lead to challenges in maintaining bullish momentum unless there is fresh buying pressure to support the market.
Although there has been a shift in sentiment, Ethereum has experienced a decrease in long liquidations. This suggests a growing sense of stability in the market, making it less susceptible to sudden sell-offs triggered by market corrections.
Comparing the current situation with last year’s pattern, ETH appears to be following a similar trajectory. In December 2023, ETH’s price surged from $2045 to $2448, corrected to $2259 by year-end. Beginning January 2024, prices rose from $2281 to $2717 before a consolidation phase, followed by a strong upswing to $4090.
If history repeats itself, there could be a substantial price increase for ETH in the first quarter of 2025, as indicated by the analyst’s observations.
Implications for ETH Going Forward
Despite the decline in long positions by Ethereum’s liquidity providers, there is still considerable demand for long positions driven by high speculative activity surrounding ETH.
Current analysis suggests that Ethereum is operating in a leveraged market environment, evident from the continuous rise in the estimated leverage ratio over the past month, from 0.4 to 0.56.
Furthermore, the Binance Funding Rate has remained positive, indicating ongoing anticipation of price increases by traders despite the reduced capital inflow from liquidity providers.
ETH Outlook for 2025
In essence, while liquidity providers are reducing their positions, the persisting demand for long positions signals continued bullish sentiment in the market, fueled by speculative activities.
Although speculative market behavior can lead to price collapses, it can also drive short-term price increases. To sustain its growth in 2025, Ethereum’s market should aim to strengthen its fundamentals and rely less on speculation, which is vulnerable to corrections.
With the current high demand for long positions, ETH is entering 2025 with a positive market sentiment. If this sentiment remains bullish, ETH is likely to break above the $3500 consolidation range and challenge the $4000 resistance level, which has previously posed significant barriers. However, in case of a speculative bubble burst, ETH could potentially drop below $3000.