Ethereum price is trapped, but leverage ratio points to a rebound

Ethereum price has remained in a tight range this month as its ecosystem faces substantial challenges and increasing competition. 

Ethereum (ETH), the second-largest cryptocurrency, was trading at $3,310 on January 22, roughly 20% below its November highs. In comparison, Bitcoin (BTC), Solana (SOL), and Ripple (XRP) have recently retested their all-time highs. 

Ethereum has also continued to lose market share in key areas. For instance, Jito has overtaken Ethereum in fee revenue this year, generating $157 million compared to Ethereum’s $112 million. 

Ethereum’s decentralized exchange volume has also dropped significantly below that of Solana. Solana-based protocols like Raydium and Orca handled over $123 billion in volume over the past seven days, compared to Ethereum’s $26 billion. This surge was largely driven by the popularity of the Official Trump and Melania coins.

The price of Ethereum has also struggled due to ongoing token sales by the Ethereum Foundation and rising exchange balances. According to CoinGlass, these balances increased to 15.8 million ETH, up from 15.3 million on January 1. 

Still, there are positive catalysts pointing to a potential Ethereum price rebound. Spot Ethereum ETFs have seen consistent inflows, reflecting some demand from Wall Street investors. Over the past five days, cumulative inflows rose to $2.74 billion.

Additionally, data shows Ethereum’s leverage ratio has been climbing in recent months, reaching 0.6 compared to 0.24 in September 2023. Interestingly, the leverage ratio and Ethereum’s price have diverged, which could indicate further gains ahead. 

Another promising factor is that Ethereum’s futures open interest has remained elevated in recent weeks. On January 22, open interest stood at over $30.3 billion, a significant increase from December’s low of $20 billion.

Ethereum price technical analysis

The daily chart reveals that Ethereum price encountered strong resistance at $4,000, which represents the upper boundary of a cup and handle pattern. The cryptocurrency is currently forming the handle section of this pattern. 

The handle resembles a falling wedge, defined by two descending and converging trendlines. Falling wedge patterns are often bullish and indicate potential gains. Moreover, ETH has remained above the 200-day Exponential Moving Average.

As a result, Ethereum is likely to experience a strong bullish breakout, with the next target potentially at $4,000, marking a 21% increase from its current level.