Key Points
- Ethereum’s Estimated Leverage Ratio has fallen by 15% in two days, indicating less leverage in the market.
- Around 375,000 ETH has been withdrawn from derivative exchanges as speculative interest diminishes.
The market for Ethereum has seen a decrease in leverage, as indicated by a 15% drop in the Estimated Leverage Ratio over two days.
This comes after one of the most volatile weeks in Ethereum’s history, with the cryptocurrency recovering from a five-month low of $2,160 to trade at $2,760.
Shifting Dynamics in the Derivatives Market
Despite this recovery, the rebound may be temporary due to changes in the derivatives market.
Earlier this week, liquidations in the Ethereum market resulted in a significant decrease in open positions, thereby reducing leverage.
The leverage ratio has fallen from 0.64 to 0.54, its lowest in six weeks. This follows a significant drop in open interest to $22 billion, the lowest since late November.
Historically, the price of Ethereum tends to fall when the leverage ratio decreases. If this pattern continues, Ethereum’s price could drop further until derivative traders begin opening new positions.
Withdrawal from Derivative Exchanges
The decrease in speculative activity around Ethereum is also evident in the withdrawal of 375,000 ETH from derivative exchanges in the past three days.
This suggests that traders are reducing their risk. The withdrawals have coincided with increased inflows to spot exchanges, indicating that traders are closing their leveraged positions and selling Ethereum in the spot market.
This could put downward pressure on Ethereum due to increased selling activity. However, it also indicates a decrease in liquidation risk, which could result in less market volatility.
Ethereum has formed a bearish crossover on its one-day chart, suggesting that the downward trend is strengthening. Despite this, the Chaikin Money Flow remains in bullish territory, indicating that buying pressure is still strong.
For Ethereum to overcome this bearish pressure, it needs to breach resistance at the 200-day Simple Moving Average ($2,973). Another significant resistance level is at the 50-day Simple Moving Average ($3,304), with a breakout potentially triggering strong bullish sentiment.
