Why Ethereum is seeing waning bullish sentiment

• Ethereum saw a drop in the Estimated Leverage Ratio.
• In combination with other metrics, the inference was that bullish certainty was falling.

In a report last week, AMBCrypto highlighted that Ethereum [ETH] has underperformed Bitcoin [BTC] in recent weeks.

Comparing their performance in December, AMBCrypto found that ETH has gained 11.3% at press time, while BTC has gained 14.8%.

This meant that market participants had a valid reason to question their short-term ETH holdings. Evidence for this was present in the form of a dropping Estimated Leverage Ratio (ELR), AMBCrypto found.

This metric warranted a closer look and could reveal what the market expects for Ethereum over the next month.

The ELR has trended lower for a while now

As the name suggests, the ELR is an estimation that divides the exchange’s Open Interest with the exchange’s coin reserve to approximate the average leverage employed by users.

This metric generally trends higher during bullish market conditions, when market participants are encouraged to assume more risk in search of gains during a trending market.

The ELR chart from CryptoQuant showed that the metric has trended higher since the first week of September. Around that time, ETH dipped to $1531 but bounced higher and began to rally.

On the 8th of December, the 14-day Simple Moving Average (SMA) of the ELR began to drop. At press time, this dip was still in progress. This meant that users were less willing to assume risk.

They might also be pivoting to long-term holding strategies.

Source: CryptoQuant

To better understand what is happening, AMBCrypto looked at other metrics. One of them was the Ethereum Exchange Inflow. A rising ELR alongside a rise in the inflows would be a strong signal that participants were bearish on ETH.

Source: CryptoQuant

On the 11th and the 18th of December, the inflow metric saw a spike in the readings. This represented a large amount of ETH entering exchanges. Looking at the 14-day SMA, we can see that it has trended upward.

Combined with the depressed ELR, it is a sign that selling pressure has been on the rise over the past two weeks.

What is the market sentiment like?

The Open Interest is a good gauge of market sentiment. Trending prices and a rising OI are strong signals that market participants have expectations of further gains and are positioned long in the market.

Source: CryptoQuant

As we can see, the OI has also trended higher from mid-September. In particular, the uptrend in prices and OI in October and early December came alongside rising prices, signaling a firm bullish conviction.

However, after the 9th of December, we see the 14-day SMA of Ethereum’s OI slide lower. Despite the OI spike on the 22nd of December, the trend appeared to be pointed lower.

Read Ethereum’s [ETH] Price Prediction 2023-24

From a technical perspective, ETH bulls faced a massive challenge when attempting to convert the $2300-$2370 area to a support zone.

The inference from the metrics was that Ethereum’s bullish momentum was likely slowing down. The belief in ETH has eroded over the past ten days. It remains to be seen whether ETH bears can force prices to fall below the $2132 support level.