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- Ethereum’s expected leverage ratio has fallen.
- Combined with other indicators, the inference is that bullish certainty is declining.
In a report last week, AMBCrypto highlighted that Ethereum (ETH) has underperformed Bitcoin (BTC) in recent weeks.
AMBCrypto compared December performance and found that ETH was up 11.3% at press time, while BTC was up 14.8%.
This meant that market participants had good reason to question short-term ETH holdings. AMBCrypto says evidence of this exists in the form of a decline in expected leverage ratios (ELRs).
This indicator warrants close scrutiny and could shed light on what the market expects for Ethereum over the next month.
ELR has been trending downward for some time.
As the name suggests, ELR is a rough estimate of the average leverage used by users by dividing an exchange’s open interest by the exchange’s coin holdings.
This indicator typically trends higher during bullish market conditions when market participants are encouraged to take on more risk to seek profits in trending markets.
According to CryptoQuant’s ELR chart, the indicator has been trending higher since the first week of September. Around that time, ETH fell to $1531, but began to bounce back, bouncing higher.
On December 8, ELR’s 14-day simple moving average (SMA) began to decline. At press time, this decline was still ongoing. This meant that users were less willing to take risks.
They may also pivot to a long-term holding strategy.
Source: CryptoQuant
To better understand what was happening, AMBCrypto looked at other metrics. One of them was Ethereum Exchange Inflow. A rising ELR along with increased inflows would be a strong signal that participants are bearish on ETH.
Source: CryptoQuant
There was a surge in inflow indicator figures on December 11th and 18th. This means a large amount of ETH flowing into exchanges. If you look at the 14-day SMA, you can see that it is trending upward.
Combined with a depressed ELR, this signals increased selling pressure over the past two weeks.
What is the market sentiment?
Open interest is a good gauge of market sentiment. The trending rise in price and OI is a strong signal that market participants are taking long positions in the market in anticipation of further rises.
Source: CryptoQuant
As you can see, OI has also shown an upward trend since mid-September. In particular, the upward trend in prices and OI in October and early December was accompanied by rising prices, indicating solid bullish confidence.
However, we can see that the 14-day SMA of Ethereum OI has been falling since December 9th. Despite the spike in OI on December 22, the trend appears to be lower.
Read Ethereum (ETH) price prediction for 2023-24
From a technical perspective, ETH bulls face a huge challenge as they attempt to turn the $2300-$2370 region into a support zone.
Inferred from the indicators, it is likely that Ethereum’s bullish momentum will slow down. Confidence in ETH has weakened over the past 10 days. It is yet to be seen whether ETH weakness can push the price below the $2,132 support level.