Ethereum’s price is currently hovering just above the $2,900 mark, signaling a 9.8% loss for the week. On-chain metrics reveal the factors contributing to ETH’s underwhelming performance.
In contrast to the broader altcoin market, Ethereum is underperforming. The altcoin market had a positive start to May 2024, with over $150 billion in capital inflows within the first week. However, since May 7, the market rally has slowed down, and bears have reclaimed a significant portion of the gains.
TradingView’s TOTAL2 metric, which tracks the total market cap of all listed crypto assets excluding Bitcoin, provides insights into the performance of the global altcoin market. The chart shows that the global altcoin market shrunk by $73.3 billion between May 6 and May 11, a 6.9% decline. Interestingly, Ethereum’s price declined by 9.8% during the same period, indicating that it is performing below the market average. This underwhelming performance could be attributed to negative sentiment and delays in Ethereum ETF approval prospects in the US.
In early May, spot ETH ETFs were approved for trading in Hong Kong, raising hopes for a similar approval in the US. However, with significantly lower volumes in Hong Kong compared to the US market, this development failed to have a significant impact. Furthermore, Grayscale, the largest Digital Assets Manager in the US, withdrew its Ethereum ETF application, further dampening prospects for approval in 2024.
On-chain data suggests that speculative traders have turned bearish on ETH due to these developments. The ETH open interest ratio, which measures the value of capital invested in ETH derivatives contracts against the spot market capitalization, has been declining since mid-April. Historical data shows that the ETH price has struggled to stay above $3,000 when the open interest ratio falls below 0.2%. The latest data shows Ethereum’s open interest ratio at 0.18% on May 10, indicating that traders are pessimistic about short-term price prospects and are unwilling to invest in new futures contract positions.
Looking ahead, Ethereum’s price forecast remains uncertain. The decline in open interest relative to spot market activity suggests that breaking above $3,100 in the near term may be challenging. However, there is a support cluster at the $2,850 level, with 1.32 million active addresses buying 1.08 million ETH at an average price of $2,860. If ETH fails to stay above $2,900, bulls may start making rapid covering purchases to prevent a breakdown below $2,850, potentially triggering a rebound. However, the sell wall at $3,100 could hinder any short-term breakout.
In conclusion, the decline in Ethereum’s open interest ratio is likely to impact price movements, leading to a subdued market within the $2,800 to $3,100 range. It’s important to note that this content is informational and should not be considered financial advice. Readers are encouraged to conduct thorough research before making any investment decisions. The Crypto Basic does not take responsibility for any financial losses.