Ethereum (ETH) has experienced significant volatility this week, following a sharp dip to a five-month low of $2,160 earlier this week. While ETH has since recovered to around $2,760 at the time of writing, the current rebound may not be sustainable. The shift in market dynamics, particularly in the derivatives market, poses potential risks to Ethereum’s price, and the altcoin needs to overcome key resistance levels to avoid further declines.

Ethereum’s Leverage Ratio Drops Significantly

A major development in the Ethereum market is the dramatic 15% drop in Ethereum’s estimated leverage ratio over the past two days. The leverage ratio, which measures the amount of borrowing in relation to Ethereum’s spot price, fell from 0.64 to 0.54. This represents the lowest level for Ethereum in six weeks.

The reduction in leverage follows a wave of liquidations earlier this week, where numerous traders closed or liquidated their positions. This resulted in a significant decrease in open interest, now sitting at $22 billion, the lowest figure since November 2024. Historically, when Ethereum’s leverage ratio drops, it is often followed by a price decline, as speculators scale back their positions.

If the trend continues, Ethereum may experience further downward pressure unless derivatives traders begin to re-enter the market and regain conviction in the trend. The drop in leverage suggests that market participants are exercising caution, and unless there is a shift in sentiment, the ETH price could face additional downside risks.

Major Withdrawals from Derivative Exchanges

The changes in the leverage ratio are not the only indicators of a bearish outlook for Ethereum. Over the last few days, 375,000 ETH has been withdrawn from derivative exchanges. This significant outflow indicates that traders are de-risking, likely closing their leverage positions, and reducing their exposure to Ethereum.

Interestingly, these withdrawals have been accompanied by a surge in inflows to spot exchanges, indicating that many traders are moving their positions from derivatives to spot markets. The selling activity on spot exchanges could add further selling pressure to the market, potentially driving ETH lower in the short term.

At the same time, this repositioning could have a positive side effect: a reduction in liquidation risk. With fewer traders using high leverage, the market may experience less volatility, but it may also contribute to a slower recovery for Ethereum’s price.

Bearish Crossover Forms on Ethereum’s Charts

A bearish crossover on Ethereum’s chart also suggests a weakening price trend. The 50-day Simple Moving Average (SMA) has crossed below the 100-day SMA, signaling a potential downtrend. This crossover is typically a sign of bearish momentum gaining strength. However, it’s important to note that despite this, the Chaikin Money Flow (CMF) remains in bullish territory, indicating that there is still buying pressure supporting the market.

This mixed signal suggests that while Ethereum faces potential bearish momentum in the short term, strong buying pressure could prevent the price from falling significantly. Still, traders should be cautious and look for confirmation of either a continuation of the downtrend or a reversal.

Key Price Levels to Watch for Ethereum

For Ethereum to overcome the bearish pressure it currently faces, it must break through key resistance levels. The first significant resistance is at the 200-day SMA, which currently sits around $2,973. Historically, when Ethereum has breached this level, it has led to bullish momentum. A breakout above this price point would signal that the buying pressure is gaining strength, potentially triggering a rally toward higher levels.

The next major resistance is the 50-day SMA, which is positioned at $3,304. A breakout above this level would likely ignite even stronger bullish sentiment and could set the stage for Ethereum to resume its upward trajectory.

Support Levels to Monitor

On the flip side, if Ethereum fails to break through resistance and sellers gain control, the price could revisit lower support levels. One key support level is at $2,160, a recent low that could act as a target if the market remains weak.

In summary, Ethereum is at a crucial juncture. The recent drop in leverage, large withdrawals from derivative exchanges, and bearish crossover on the charts all suggest the potential for further downside unless Ethereum can break through key resistance levels. Traders should monitor these key price points closely to gauge whether Ethereum can continue its recovery or if it will face further declines.