Ethereum Price Stuck In Downtrend Despite Strong Spot Demand

The Ethereum price resumed its downtrend on Friday, May 22, after consolidating throughout the week. As a result of this distribution round, the second-largest cryptocurrency dropped by approximately 6.2%, forming a local bottom at $2,020. 

Although Ethereum has an ostensibly bearish structure, a recent on-chain analysis has revealed notable buying activity in its market. Yet, the Ethereum price weakness seems almost unchecked — below are the details of its current on-chain dynamics. 

Spot Buyers Step In, But ETH Continues To Fall

In a recent Quicktake post on the CryptoQuant platform, on-chain analyst Carmelo Alemán outlined the factors behind Ethereum’s current price weakness. In the analysis, Alemán revealed that the altcoin’s current downward trend is not due to a lack of demand in the spot market.

Alemán stated, as a matter of fact, that the Spot Taker CVD is reflecting that Ethereum’s spot market is still Taker Buy Dominant. This means aggressive market buyers are executing more buy orders than sellers are executing sell orders over a given period.

Source: CryptoQuant

In spite of this, the Ethereum price doesn’t seem to be gaining significant strength from a broader perspective. As the Spot Taker CVD flashed the aforementioned sign, the price of ETH actually contracted from $2,339 on May 11 to $2,065.8 by May 22.

However, it is worth noting that spot trading activity has also contracted sharply since May 11, with spot volume reportedly falling from approximately 470,770 ETH to 256,963 ETH (a decline of over 45%); this amounts to a 52.65% drop from around $1.10 billion to $521.4 million.

Derivatives And Exchange Activity Show Mixed Signals

Furthermore, the crypto analyst pointed out that Ethereum’s derivatives market has yet to show strong conviction in its bullish traders’ behavior. “Open Interest is moving sideways: from $15.43B to $15.54B, barely +0.69%,” Alemán noted.

While this is the case, Futures CVD still points to a predominance of long positions, indicating that many participants continue to bet on a rebound. Interestingly, Alemán pointed out that Funding Rates have also remained positive since May 11, meaning long traders are paying short traders to maintain their positions.

Adding to the list, the on-chain analyst revealed that Ethereum’s cumulative Exchange Netflow also read negative, near -80,507 ETH. This means that more ETH was withdrawn from exchanges than was sent to them.

Typically, this should be a bullish sign for Ethereum price, as coins moved away from exchanges are often held for storage rather than for sale, which is typical of high net inflows. Yet, the Ethereum price failed to gain bullish strength.

Alemán mentioned that Ethereum’s current trend could only be due to more supply being available for sale relative to current demand. This causes the bullish pressure that would otherwise have risen from both spot and futures markets to be absorbed. 

The analyst concluded:

Until ETH recovers spot volume, breaks resistance, and confirms a healthy expansion in derivatives, bearish pressure is very likely to remain dominant. In the short term, the price appears to be heading toward the $1,984 support, and if it breaks, the next stop could be the $1,937 support.

As of this writing, the Ethereum price stands at $2,114, up by more than 2% over the past day. 

The price of ETH on the daily timeframe | Source: ETHUSDT chart on TradingView

Featured image from iStock, chart from TradingView