Journalist
Posted:
- Ethereum saw a drop in estimated leverage ratio.
- Combined with other metrics, the conclusion was that bullish certainty was waning.
In a report last week, AMBCrypto highlighted that Ethereum [ETH] has underperformed Bitcoin [BTC] the past weeks.
When comparing their December performance, AMBCrypto found that ETH is up 11.3% at the time of writing, while BTC has gained 14.8%.
This meant that market participants had a valid reason to question their short-term ETH holdings. Evidence of this was present in the form of a declining Estimated Leverage Ratio (ELR), AMBCrypto discovered.
This metric warranted further investigation and could reveal what the market expects for Ethereum in the coming month.
The ELR has been trending lower for some time now
As the name suggests, the ELR is an estimate that divides the exchange’s Open Interest with the exchange’s coin reserve to approximate the average leverage of users.
This measure generally tends higher during bullish market conditions, when market participants are encouraged to take on more risk in search of profits during a trending market.
CryptoQuant’s ELR chart showed the metric trending higher since the first week of September. Around that time, ETH fell to $1531, but bounced higher and started to rise.
On December 8, the ELR’s 14-day Simple Moving Average (SMA) began to decline. At the time of writing, this dip was still ongoing. This meant that users were less willing to take risks.
They may also focus on long-term investment strategies.
Source: CryptoQuant
To better understand what’s happening, AMBCrypto looked at other metrics. One of these was the Ethereum Exchange Inflow. A rising ELR alongside a rise in inflows would be a strong signal that participants were bearish on ETH.
Source: CryptoQuant
On December 11 and 18, the inflow statistic saw a peak in the measurements. This represented a large amount of ETH hitting the exchanges. If we look at the 14-day SMA, we can see that it is trending upwards.
Combined with the depressed ELR, this is a sign that selling pressure has increased over the past two weeks.
What is the market sentiment like?
The Open Interest is a good indicator of market sentiment. Trending prices and a rising OI are strong signals that market participants have expectations of further gains and are positioned long in the market.
Source: CryptoQuant
As we can see, the OI is also trending higher from mid-September. In particular, the upward trend in prices and OI in October and early December was accompanied by rising prices, indicating a clear bullish conviction.
However, after December 9, we see the 14-day SMA of Ethereum’s OI falling. Despite the OI peak on December 22, the trend appeared to be pointing downwards.
Read Ethereum’s [ETH] Price forecast 2023-24
From a technical perspective, ETH bulls faced a huge challenge as they attempted to convert the $2300-$2370 area into a support zone.
The conclusion from the statistics was that Ethereum’s bullish momentum was likely slowing. Belief in ETH has eroded over the past ten days. It remains to be seen if ETH bears can force prices to fall below the USD 2132 support level.