Ethereum Price Stumbles as Sentiment Turns Sour

Despite a brief bullish surge on Tuesday, Ethereum has witnessed a 2.6% decline within 24 hours, casting doubt on an immediate recovery. The falling trading volume, declining market cap, and waning interest in derivatives markets suggest a growing bearish outlook. Ethereum's technical structure shows weakened support levels and strong resistance areas, potentially hindering its upward trajectory in the short term.

Ethereum Price Stumbles Amid Weakening Sentiment

A brief surge in bullish sentiment on Tuesday led investors to believe that the recent retracement in cryptocurrency markets was merely a temporary setback. However, a 2.6% decline in Ethereum (ETH) prices over the past 24 hours has cast doubt on the likelihood of an immediate recovery to all-time highs.

After reaching a high of $4,091 on Tuesday, ETH prices have since retreated to around $3,430 during U.S. business hours. A significant drop in trading volume, down 38% to $19 billion, suggests waning interest among traders. A further 3% correction in ETH's market capitalization reflects a growing bearish outlook.

Declining Derivatives Interest Raises Concerns

The recent price decline has had a negative impact on the derivatives market, with open interest falling from a record high of $13 billion in March to $11.34 billion by the end of March, according to data from Coinglass. While open interest has recovered slightly to $11.7 billion, further corrections cannot be ruled out.

A decrease in open interest in derivatives markets often indicates reduced trader activity, which can reflect diminished liquidity, waning confidence in the market, and potential shifts in market trends.

DeFi TVL Declines, Adding to Selling Pressure

According to DeFi Llama, the total value locked (TVL) in decentralized finance (DeFi) protocols has fallen to $50.63 billion from a recent high of $57.59 billion. A decline in DeFi TVL, which includes assets staked in smart contracts, tends to exacerbate selling pressure as investors withdraw their holdings from staking contracts in anticipation of further price declines.

Technical Analysis Points to Challenges Ahead

The technical outlook for ETH remains bearish, despite the recovery witnessed last week. A correction followed immediately after the price reached $3,640, as investors remained unconvinced of a sustained rally above $4,000 and subsequently to $5,000.

At the time of writing, the 38.2% Fibonacci level is providing support, and ETH is expected to bounce from this level. However, the Moving Average Convergence Divergence (MACD) indicator, while still bullish, is beginning to show signs of a retracement towards the neutral area, which could encourage traders to short ETH.

Resistance and Support Levels Hinder Recovery

According to blockchain data from IntoTheBlock, Ethereum price may face significant resistance in the short term due to weakening support levels and strong resistance areas.

The IOMAP model indicates that the region between $3,615 and $3,715 represents the largest supply zone, where 727,000 addresses purchased 4.22 million ETH at an average price of $3,370. If ETH manages to recover to this level, investors in this cohort may sell at their breakeven points, dampening the uptrend and potentially triggering another sell-off.

The IOMAP model also shows that support areas have been weakening, which could lead to a drastic change in the technical structure and potentially far-reaching losses to $2,400.

Conclusion

The recent decline in Ethereum prices has raised concerns among investors, who are now questioning the sustainability of the recent rally. Weakening sentiment, declining derivatives interest, and a bearish technical outlook suggest that ETH may face challenges in reaching $4,000 in the near term.