Ethereum Is Already Showing Early Signs of Recovery
Ethereum, the second-largest cryptocurrency by market capitalization, is starting to exhibit early indications of a recovery. After reaching a recent low around $1,840, Ethereum has rebounded nearly 4%, indicating that buyers may be stepping back into the market. This movement isn’t merely coincidental; a rebound pattern has been quietly forming over the past several weeks.
A Notable Shift in Market Dynamics
Several key signals are suggesting a potential shift in Ethereum’s trading landscape. First and foremost, selling pressure has sharply declined. Additionally, derivatives traders have adopted an aggressively bearish stance without significantly increasing their positions. Simultaneously, long-term holders—those who tend to buy and hold—are re-entering the market after a prolonged period of selling. Together, these factors suggest that the current Ethereum bounce may have the potential to extend further.
Ethereum Bounce Setup: The Emergence of Bullish Divergence
Examining Ethereum’s short-term chart reveals a symmetrical triangle pattern that reflects market indecision; buyers and sellers are locked in a battle for supremacy. Notably, a bullish divergence has emerged between price action and the Relative Strength Index (RSI), a momentum indicator telling us whether buying or selling pressure is gaining strength.
Researching the timeline between early February and February 23, we can see that while Ethereum’s price recorded lower lows, the RSI registered higher lows. This classic pattern suggests that selling pressure may be waning, indicating potential for a reversal.
Historical Precedents for Recovery
Interestingly, this bullish divergence signal has previously triggered recoveries; for example, between February 3 and February 13, a similar divergence resulted in nearly a 10% rebound, while another divergence between February 3 and February 15 contributed to a 6% uptick. The recent 4% recovery demonstrates that buyers are starting to respond to weakening downside momentum, but technical indicators alone don’t tell the complete story. Understanding the underlying shifts in market sentiment is vital.
Dramatic Reduction in Selling Pressure
One of the most significant changes in the market has occurred in Ethereum’s exchange inflows, which measure how many coins are moving into exchanges—an indication of selling intent. On February 7, Ethereum exchange inflows peaked at roughly 1.06 million ETH. Since that time, inflows have plummeted to about 126,000 ETH—a staggering 90% drop. This decline suggests a dramatic reduction in potential selling pressure.
During the same period, Ethereum’s price fell approximately 14%. Typically, one would expect rising selling pressure to accompany a price drop. However, in this case, price declines occurred alongside diminishing selling pressure, hinting that market weakness originated from elsewhere.
Derivatives Traders and Market Sentiment
The source of this market weakness appears to lie with derivatives traders. Ethereum’s funding rates, which determine the cost of holding short positions, turned deeply negative, reflecting a significant shift in sentiment. Since February 7, funding rates have dropped from slightly positive to around -0.02%, indicating a considerable bearish flip in sentiment.
However, the open interest—a gauge of total active futures positions—tells a different story. Open interest has remained relatively stable, declining only marginally from approximately $9.06 billion to $8.88 billion. This indicates that while existing traders have grown bearish, new short positions have not aggressively entered the market. This particular construct can create instability, setting the stage for a potential short squeeze where rising prices can force short sellers to liquidate their positions, resulting in a further price surge.
A Shift Among Long-Term Holders
Another notable change can be observed among long-term holders. The Hodler Net Position Change metric, which measures the buying and selling behavior of long-term investors, indicated negative numbers for much of February, showcasing sustained selling. Long-term holders sold more than 41,000 ETH at one point, but this trend has now reversed. Over the last couple of days, this metric turned positive, indicating a net accumulation of over 6,000 ETH.
This shift suggests that experienced investors are starting to buy again, a behavior often seen near local bottoms as they position themselves before a general market recovery. Consequently, the return of long-term buyers aligns with the overall decline in selling pressure and bearish sentiment among derivatives traders.
Key Resistance Levels Ahead
As Ethereum continues its upward trajectory, it will face essential resistance levels that could dictate the continuation of this bounce. The first major resistance level is set at $1,920. A breakout above this zone would confirm the strengthening momentum. Following that, resistance levels come into play at $2,020 and a critical technical level around $2,060, where Ethereum is likely to meet significant resistance.
If Ethereum clears the $2,060 hurdle, the price could accelerate toward $2,200 and possibly even $2,420. However, maintaining support is equally crucial; the pivotal downside level is still $1,840. Falling beneath this critical threshold could invalidate the current bounce structure, with the next downside target likely landing near $1,740.
In summary, Ethereum’s recent price action is becoming more than just a transient relief rally. The significant drop in selling pressure, the stabilization of bearish sentiment among derivatives traders, and the renewed interest from long-term holders collectively bolster the recovery narrative. With various factors at play, Ethereum’s evolving landscape hints that the current rebound may mark the beginning of a larger upward movement, contingent on key breakout levels.
