Key takeaways:
Ether dropped below $4,300 after failing to hold above $4,700, with $338 million in liquidations increasing the sell pressure.
Analysts point to $4,300 as a critical support level, but September’s historical weakness raises the risk of a 10% pullback.
A decrease in open interest and negative funding rates indicate that long positions are being eliminated, which could create conditions for a rebound if demand returns.
Ether (ETH) struggled to maintain momentum above the $4,700 resistance this week, falling back under $4,300 on Friday, breaching an important ascending trendline support noted by Fundstrat’s Tom Lee.
This shift occurred amid decreasing market liquidity and followed a broader $338 million liquidation of Ether futures positions between Aug. 22 and 23, increasing the likelihood of a deeper correction into September.
Lee and Fundstrat analyst Mark Newton identified the $4,300 level as a key floor on Tuesday, citing neutral relative strength index (RSI) readings and a still-bullish Ichimoku cloud structure as reasons for hope.
However, the current outlook appears grim with September seasonality looming over the bullish setup. Data from CoinGlass shows that historically, September has been Ether’s weakest month, with the altcoin registering its worst median returns of -12.55% in this period. This historical trend suggests that short-term risks remain tilted downward if Ether fails to hold the crucial support at $4,300.
Related: ETH possibly bullish ‘for years’ as megaphone pattern to $10K emerges: Analyst
Divergence in Ether open interest trends
Futures positioning has become more cautious. Analyst Amr Taha noted that the daily percentage change in ETH open interest (OI) made a higher low compared to its last low, but total open interest fell to a lower low on Binance. This divergence indicates a structural imbalance, as retail traders are closing long positions instead of increasing them.
The total ETH OI has decreased to approximately $9 billion. Interestingly, the last time open interest fell to this level, ETH surged back to $4,900, implying that a reduction in excess leverage could pave the way for recovery.
Simultaneously, funding rates across major exchanges have turned negative, indicating a prevalence of short positions in the perpetual markets. The combination of declining open interest and negative funding rates shows that long positions are being eliminated rather than initiated.
Nevertheless, historically, such conditions can also precede rapid reversals, as negative funding often signals overcrowded short positions that could leading to a swift bullish rebound if spot demand returns.
From a technical perspective, higher time frame charts display weakness as the monthly close approaches. Historically, the beginning of September tends to have a higher likelihood of corrections, making a 10% dip from current levels a possibility in the first week.
The immediate support to watch is around $4,180, although a significant rebound from this level seems less probable since the recent breakdown follows an extended bullish trend.
Instead, market participants may be mentally positioning below the $4,000 mark, with the $3,900–$3,700 range aligning with a daily fair value gap (FVG) that could attract buying interest.
If this zone fails, attention would turn to the next FVG between $3,100 and $3,300. This area could act as a crucial inflection point for the continuation of a broader bull market.
A breakdown below this would signify a major shift in the higher time frame structure and could raise concerns regarding the longevity of Ether’s current bull cycle.
Related: CoinShares reports 26% AUM increase to $3.46B in Q2
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
