Are ETH Traders Awaiting Direction as Derivatives Activity Cools Down?
Ethereum, the second-largest cryptocurrency by market capitalization, has maintained a sideways, choppy trend for the past few weeks, with the price retracing downward after every attempted rally.
This trend pattern caused many traders to wait on the sidelines, without taking a trading position. From all indications, those traders are waiting for a breakout in either direction to decide what to do with the cryptocurrency.
Source: X
A Changing Dynamics for Ethereum
In the meantime, cryptocurrency analysts have identified an event that could attract traders’ attention toward Ethereum. Data from CryptoQuant show that $ETH derivatives activity has cooled down, a development analysts believe could precede a breakout.
Analyst Darkfost, who posted about the latest development, noted that Ethereum’s Estimated Leverage Ratio on Binance has sharply declined to 0.57, while the cryptocurrency once again tested the $2,450 resistance level. According to the analyst, lower leverage tends to stabilize the market, especially while $ETH is attempting to break out of its range.
How Has Ethereum Performed Lately?
Notably, Ethereum’s latest sideways consolidation started after the cryptocurrency rebounded from its February low of $1,742. The flagship altcoin has since rallied over 40% before retracing slightly, leaving it with a net recovery of 33.5% as of the time of writing, according to TradingView’s data.
CryptoQuant’s analyst noted that during the cited rebound, Ethereum’s open interest increased by roughly $4.5B, as indicated by the crypto asset’s Estimated Leverage Ratio on Binance, which peaked at 0.76 on March 16. It highlights the acceleration in leverage usage across the platform, confirming a strong resurgence in derivatives activity.
Crucial Signals From the Latest Events
It is worth noting that Ethereum’s funding rates remained predominantly negative during the latest rebound, indicating a bearish posture from most investors. However, $ETH’s declining Estimated Leverage Ratio aligns with a positive funding rate, signaling an increasing dominance in long positions.
Source: X
According to the analyst, two main factors can contribute to the decline in leverage usage in Binance: long positions opened in anticipation of a breakout that were quickly closed during the latest pullback, or short positions that were closed or liquidated when $ETH’s price rallied. Nonetheless, the analyst noted that spot demand will need to take over for a bullish breakout to materialize on $ETH.
Related: Ethereum Price Prediction: Market Consolidates at Key $2,370 Level Ahead of Breakout