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▲ Ethereum (ETH)
As the overheating in the Ethereum (ETH) derivatives market subsides, the possibility of a new breakthrough is being discussed. An analysis suggests that if spot demand re-enters amid lowered leverage burden, Ethereum could break out of the sideways trading range it has been in for nearly a month.
CryptoBasic reported on May 11 (local time), citing an analysis by CryptoQuant contributor DarkPost, that the Ethereum derivatives market is cooling down. According to the article, Ethereum rebounded approximately 33% from its February low and has since traded between $2,250 and $2,450 for nearly a month. During this period, derivatives activity sharply increased, with open interest growing by approximately $4.5 billion.
A key indicator showing the expansion of speculative positions was Binance's estimated leverage ratio. This metric tracks how much leverage traders are using relative to the exchange's held assets. Binance's estimated leverage ratio rose to 0.76 on March 16 but then sharply dropped to 0.57. DarkPost noted that the leverage ratio significantly decreased as Ethereum once again tested the $2,450 resistance level.
He viewed the decline in leverage not necessarily as a bearish signal. Rather, it could enhance market stability at a crucial juncture in price movement. Two factors contributed to the decrease in leverage usage. Many long positions that entered anticipating a breakout were quickly liquidated after Ethereum's price pulled back to around $2,350, and previously accumulated short positions were either voluntarily or forcibly liquidated during the rally.
An interesting point is that the previous rebound occurred while funding rates largely remained in negative territory. This implied that a significant number of traders maintained a bearish outlook even as Ethereum's price rose. However, recent funding rates have generally turned positive, interpreted as long positions regaining dominance in the derivatives market.
However, DarkPost pointed out that even with improved futures market conditions, it is difficult to achieve a sustained breakout solely through derivatives. The analysis suggests that for Ethereum to clearly break out of its month-long trading range and continue its upward trend past the $2,450 resistance, it needs support from spot demand. The current structure, with reduced excessive leverage, is evaluated as an environment that could generate larger directional movements if buying pressure strengthens.
CryptoBasic also conveyed that Bitcoin (BTC) has recently been leading the market trend. XWIN Research, in its analysis last week, viewed Bitcoin's recovery since April as being based on strong institutional demand. Bitcoin rose over 11%, while Ethereum's increase was limited to 7.28%. Over $4 billion in purchases from Strategy and $1.197 billion in BlackRock-led ETF inflows supported Bitcoin's recovery, whereas Ethereum's ETF inflows were $356 million, falling short of Bitcoin's approximately $3 billion.
Fund flows are moving more selectively, focusing on assets with confirmed strong demand. An analysis suggests that for Ethereum and altcoins to follow Bitcoin's trend, not only a cooling derivatives market but also sustained spot buying and capital inflows are necessary.
*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*
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