Ethereum (ETH) has recently shown strong signs of bullish momentum, with a 9% price increase over the past week, in line with a broader recovery in the cryptocurrency market. Two key on-chain metrics—Ethereum’s exchange reserves and the Estimated Leverage Ratio (ELR)—indicate that ETH could see further price strength in the coming days, offering a potentially bullish outlook for the leading altcoin.

Ethereum’s Exchange Reserves Reach a Yearly Low

On-chain data reveals that the amount of Ethereum held on exchanges has dropped to its lowest level this year. As of the latest data, the ETH exchange reserve stands at 18.32 million coins, down 7% from its year-to-date high of 19.74 million ETH, recorded on February 2, 2025.

An exchange reserve refers to the total amount of a particular asset held in exchange wallets, which are readily available for trading. When this metric decreases, it typically indicates that traders are moving their ETH holdings off exchanges. This could be for long-term storage, staking, or other investment strategies such as participating in Ethereum-based exchange-traded funds (ETFs). In simple terms, the decline in ETH supply on exchanges means less of the token is available for immediate trading, which, under conditions of steady demand, can lead to upward price pressure.

Impact of Reduced Supply on ETH’s Price

The drop in Ethereum’s exchange reserves signals reduced selling liquidity. When the available supply on exchanges decreases, it becomes harder for sellers to flood the market, thus limiting the downward pressure on the price. Additionally, with fewer tokens available for immediate trading, the price can rise as demand continues to outweigh the reduced supply.

For investors, this is a bullish signal. If more and more ETH is being withdrawn from exchanges and locked away in long-term holdings, it suggests that traders are increasingly confident in Ethereum’s long-term prospects. This reduced supply, coupled with growing demand, sets up a favorable environment for a potential price rally.

Increased Leverage Indicates Growing Optimism

Alongside the decrease in exchange reserves, another key metric indicating growing optimism among traders is Ethereum’s Estimated Leverage Ratio (ELR). The ELR measures the level of leverage that traders are using to place bets on an asset’s price. It is calculated by dividing the open interest (the number of outstanding contracts) by the exchange’s reserve for that particular cryptocurrency.

ETH’s ELR has been on the rise, reaching a year-to-date high of 0.686 on March 21, 2025, before slightly pulling back to 0.683. This increase signals that traders are taking on more leverage to maximize their exposure to Ethereum, betting on the potential for higher prices in the near future. In general, a rising ELR reflects increased risk appetite among traders, suggesting that many believe ETH could see more significant gains soon.

Leverage also serves as a barometer of market sentiment. When traders are willing to use leverage, it reflects confidence in the price direction. As Ethereum’s ELR climbs, it suggests that a growing number of traders are positioning themselves for a potential price rally, further enhancing the bullish case for ETH.

ETH Price Action and Short-Term Outlook

At the time of writing, Ethereum is trading at $2,089, up 4% over the past day. The growing bullish bias is evident from the positive Elder-Ray Index, which tracks buying and selling pressure in the market. With a value of 52.80, the Elder-Ray Index is showing its highest level in the past 30 days, further suggesting that buyers have control and that the market sentiment remains positive.

If the bullish momentum continues, Ethereum could see its price rise to $2,148 in the short term. However, if the bearish pressure returns, ETH might drop to as low as $1,759, as sellers could potentially take control.

Conclusion

Ethereum’s supply on exchanges continues to decline, signaling reduced liquidity and creating a potential upward pressure on its price. Combined with the rising leverage ratio, these on-chain metrics suggest that traders are becoming increasingly optimistic about Ethereum’s near-term outlook. As ETH continues to trade above the $2,000 mark, the cryptocurrency appears to be at a critical juncture, with the possibility of further gains if the bullish momentum persists. However, the market remains volatile, and ETH could face challenges if bearish sentiment takes hold again.

As always, investors should remain cautious and monitor key metrics such as exchange reserves and leverage ratios to gauge the market’s direction.