Ethereum’s Downtrend Approaching End, Analyst Points to 2 Key Reasons

Ethereum, the second-largest cryptocurrency by market capitalization, has shown signs of a recovery, trading at $2,661 currently, marking a 1.6% increase over the past day. This uptick comes after a period of decline, with Ethereum hitting a low of $2,545 last week.

Despite this recent improvement, Ethereum’s price remains notably below its March peak of $4,070 and is down by about 45% from its all-time high of $4,878 three years ago. The current market conditions raise uncertainties about whether Ethereum is poised for a sustained recovery or if the recent price shifts are just a temporary adjustment.

CryptoQuant analyst Burak Kesmeci suggested that Ethereum might be nearing the end of its correction phase, citing on-chain metrics indicating a potential shift in market sentiment. Kesmeci highlighted two key datasets in his analysis. The Taker Buy Sell Ratio, reflecting the ratio of buyers to sellers across all exchanges, has turned positive, signaling a resurgence in buyer strength. This shift could hint at a forthcoming rally, especially if it persists in the coming week.

Another metric, Open Interest (OI), which represents the total number of open long and short positions in the market, reached a record high of over $13 billion in June 2024 when Ethereum’s price hit $3,800, foreshadowing an impending market correction. This correction materialized on August 5, 2024, when a macroeconomic event caused OI to drop to $7 billion. Kesmeci noted that for Ethereum’s price to make a significant upward move, leveraged players would need to re-enter the market, potentially sparking a new wave of buying activity.

While these metrics paint a positive picture, the broader market has witnessed the impact of Ethereum’s recovery over a 24-hour period, with 43,521 traders being liquidated, amounting to $111.52 million in liquidations. Ethereum contributed $26.63 million to this total, with most liquidations involving long positions, indicating ongoing market volatility and substantial risks associated with leveraged positions.

Aside from on-chain metrics, the movement of Ethereum out of exchanges is another crucial factor to consider. Data from CryptoQuant revealed a consistent rise in Ethereum exchange outflows in recent days, with significant amounts leaving exchanges. This trend typically signifies investors transferring their Ethereum holdings to long-term storage, reducing the available supply for trading on exchanges. Such behavior often suggests a positive outlook among investors as they anticipate higher future prices. The reduced exchange supply, coupled with sustained demand, could exert upward pressure on Ethereum’s price.

In conclusion, while the highlighted metrics offer hope for Ethereum’s future, the market’s volatility remains a challenge. The increasing exchange outflows and positive sentiment among buyers may indicate a potential rally, but only time will tell whether this marks a temporary rebound or the beginning of a robust bullish trend.