Ethereum's price has dipped below $3,800, dampening trader enthusiasm around the $4,000 mark. Despite this, on-chain indicators are casting doubt on the strength of the current rally. Could a bull trap be looming on the horizon ?
One of the most revealing indicators is the Coinbase Premium Index. This tool measures the price gap between Ethereum on Coinbase and other global exchanges. Historically, a positive index indicates strong buying activity from American institutions. However, it has just plunged to -0.01, its lowest level since May.
This reversal of the premium, while the overall market remains dynamic, suggests a potential gap in demand from major American players. Without these powerful institutional buyers, the foundation of ETH’s rally could weaken, making the bullish movement more vulnerable to a reversal.
Technical analysis adds another layer of concern to this picture. The Chaikin Money Flow (CMF), which measures incoming and outgoing money flows, shows a bearish divergence despite rising prices. This suggests a weakening of buying pressure, with fewer dollars flowing into the asset, despite the appearance of intact momentum.
Conversely, the On-Balance Volume (OBV), which gauges the underlying real demand, follows the bullish price trend. However, this indicator could mislead retail traders, giving them the impression that the momentum is stronger than it actually is.
Finally, Ethereum’s price action itself raises concerns. The asset is evolving within a rising wedge, a pattern often considered bearish as it indicates a slowdown in bullish momentum. This fragile structure suggests the risk of another false bullish breakout, potentially trapping late buyers.
For this bearish scenario to be invalidated, Ethereum’s price will need to break and hold above $4,024, a key resistance level. Otherwise, Ethereum could retest support at $3,510.
On-chain and technical signals suggest that Ethereum’s current rally might rest on more fragile foundations than it appears. The decrease in American institutional demand, combined with mixed technical indicators, points to an increased risk of a trend reversal in the short term. Investors would be well advised to remain vigilant against a potential bull trap.
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