Ethereum (ETH) is facing a crucial support test, with the price dropping below $2,500. As of Friday, ETH is trading at $2,490, just above its daily support at $2,461. A sustained break below this level could trigger a deeper correction, with potential declines of over 12% toward the September 6 low of $2,149. Amid this pressure, institutional demand appears to be waning, as shown by the Coinbase Premium Index, and the bearish long-to-short ratio reflects a cautious market sentiment.

Declining Institutional Interest in Ethereum

Data from Crypto Quant highlights a weakening demand for Ethereum, with the Coinbase Premium Index falling below neutral levels. This index gauges the price difference between Ethereum on Coinbase Pro (in USD) and Binance (in USDT), providing insight into large-wallet investor behavior, as Coinbase Pro is a popular choice for institutional investors. Currently, the Coinbase Premium Index for Ethereum is at -0.072, a negative reading that has persisted since early October. This sustained dip could signal dwindling demand among high-volume buyers, potentially putting more downward pressure on ETH.

Bearish Sentiment Reflected in Long-to-Short Ratio

Supporting this cautious outlook, Coinglass data shows that Ethereum’s long-to-short ratio has fallen to 0.84, its lowest in a month. A ratio below one indicates a higher number of short positions than longs, suggesting traders are anticipating a further price drop. Such sentiment can contribute to increased selling pressure, amplifying the bearish momentum.

Ethereum Approaches Key Support Level at $2,461

Technically, Ethereum’s price action shows increasing vulnerability. Having declined more than 7.6% this week, ETH is now nearing its critical support level at $2,461. The cryptocurrency faced rejection near a descending trendline formed by connecting the highs since late May. A close below the $2,461 mark could trigger a decline towards the next major support at $2,149, representing a 12% drop from current levels.

RSI Signals Weakening Momentum

The Relative Strength Index (RSI) on the daily chart has dropped to 45, below its neutral level of 50, reflecting increased bearish momentum. This further supports the potential for a downside continuation if Ethereum fails to hold above the $2,461 level.

Potential Upside: Key Resistance Levels to Watch

On the flip side, should Ethereum find support around $2,461, a close above the 50-day Exponential Moving Average (EMA) at $2,560 could pave the way for a recovery. In such a scenario, ETH might target its recent high of $2,769, though the cryptocurrency would need significant buying momentum to reclaim this level.

Outlook for Ethereum Investors

With a bearish sentiment dominating the market, Ethereum’s near-term outlook remains challenging. Investors should watch the $2,461 level closely, as a firm close below could lead to further declines. Conversely, a recovery above $2,560 could signal a bullish reversal. As Ethereum navigates these critical price levels, cautious investors may choose to wait for a clearer trend to emerge before entering new positions.

Broader Market Impact and Investor Sentiment

As Ethereum tests its lower bounds, broader market dynamics and investor sentiment play a pivotal role in the coin’s trajectory. With macroeconomic factors and upcoming regulatory developments impacting the crypto landscape, Ethereum’s ability to hold or rebound from current support levels will likely influence overall market confidence. Investors are increasingly cautious as bearish indicators mount, awaiting either a fundamental catalyst or positive technical signals for renewed buying interest. Given the historical tendency of cryptocurrencies to respond to institutional flows, Ethereum’s price may remain under pressure until demand from larger buyers stabilizes, potentially setting the stage for its next major move.