Ethereum Bull Run At Risk After ETH Price’s 7-Day Rally?

Key Insights:

• ETH price has benefited from heavy liquidity injection as Bitcoin dominance dropped aggressively.
• Ethereum exchange reserves retest critical trend line, signaling potential pivot.
• Evaluating sell-off potential and liquidation risks

Ethereum just experienced its most bullish 7-day period, after previously struggling to sustain upside momentum. Its performance was a reflection of recent shifts in the global macro-economic conditions which consequently led to a big shift in liquidity flows.

For context, altcoin bulls made an aggressive comeback with the Ethereum-native coin among the top performers. ETH was up by as much as 52% from its bottom to recent top in the last 7 days. It exchanged hands at around $2,650 at press time.

The bullish performance was largely aided by liquidity rotation especially with Bitcoin dominance declining aggressively during the same period. But despite these observations, ETH could potentially experience a significant pullback towards the $2,400 price level.

The Ethereum native coin showed signs of a potential profit-taking event after its recent upside. It was already overbought at press time and price had even demonstrated a bearish price-RSI divergence especially in its 4-hour time frame. These observations were especially in tune with another major indicator.

Ethereum exchange reserves could be on the verge of a pivot

We previously established that ETH price action has been moving based on clear support and resistance exchange reserve patterns. Unsurprisingly, ETH has been aggressively flowing out of exchanges with the latest bullish momentum and was comfortably sitting on its 6-month support level.

Ethereum exchange reserves support retest further raised the potential for a bearish pullback in the second half of the week. The extent of the pullback could be heavily influenced by factors such as prevailing market sentiment.

If the market sentiment continues to improve, then ETH’s pullback will likely be limited and the bulls will fight for dominance. On the other hand, a weaker sentiment will likely favor a bearish outcome and trigger more sell pressure intensity.

ETH exchange reserves did level out in the last 2 days right on the support line. While this might be a significant observation, it was also backed by a pivot in exchange flows.

Exchange inflows at the time of observation amounted to 4395,239 ETH while exchange outflows were significantly lower at 429,323 ETH. In other words, sell pressure was intensifying and outpacing demand, hence signaling rising profit-taking.

A recap of ETH price as appetite for leverage soars

Last week, specifically on 8 May, experienced its biggest short liquidation event in more than 6 months. That event appeared to have contributed to the kick-off of the bullish momentum that has prevailed since then.

As a result, there was a surge in open interest which peaked at $32.25 billion in the last 24 hours. Interestingly, it peaked at the same level in January, thus offering some significance.

The surging open interest was also accompanied by an uptick in the estimated leverage ratio. The latter hovered at 0.73 at press time, indicating growing appetite for leverage.

The observations signal that the recent recovery may have been backed by heavy long positions as well as shorts. Bearish expectations have thus been prevalent with roughly $111.38 million worth of shorts liquidated in the last 24 hours. In contrast, only 51.17 million longs were liquidated.

Derivatives data on Coinglass revealed a 35.93% surge in options volume and a 6.45% surge in open interest in the last 24 hours. This suggests that more sell pressure could potentially trigger heavy long liquidations.

ETH derivative funding rates in the last 7 days hovered at levels higher than those observed in March and April. Further confirmation of the growing appetite for risk and leverage.

But will these observations stand in the way of the Ethereum coin soaring above $3,000 in the second half of May? Or will the bullish momentum sustain the recent trend in favor of recovery towards its ATH?