Ethereum Price Drops 3.25%: Key Reasons Behind ETH’s Underperformance
Muhammad Faraz 
Ethereum Price Drops 3.25% Key Reasons Behind ETH’s Underperformance
Ethereum (ETH) has faced a steeper decline than the broader cryptocurrency market, dropping 3.25% to $4,330.26 in the past 24 hours compared to the aggregate crypto market’s 2.28% dip. This underperformance comes amid a confluence of technical, derivatives-driven, and macroeconomic factors that have pressured ETH’s price action.
Three primary catalysts are driving this pullback:
- Technical Breakdown – ETH failed to hold critical support levels, triggering automated sell-offs.
- Leverage Unwind – Over $1 billion in crypto liquidations this week exacerbated selling pressure.
- Market-Wide Risk-Off Sentiment – Bitcoin dominance rose to 58.9%, signaling capital rotation away from altcoins.
This in-depth analysis explores these factors in detail, examines key levels to watch, and assesses whether Ethereum’s current weakness presents a buying opportunity or signals further downside.
1. Technical Breakdown: Why $4,450 Was a Critical Support Level
Overview of Key Technical Levels
Ethereum’s decline accelerated after it broke below $4,450, a crucial Fibonacci support level representing the 23.6% retracement from its July swing low. This breakdown coincided with a drop below the 30-day Simple Moving Average (SMA) at $3,931, invalidating the short-term bullish structure.
Key technical indicators now suggest continued bearish momentum:
- MACD Histogram (+21.33) Showing Fading Bullish Momentum – The Moving Average Convergence Divergence (MACD) indicator, while still positive, has weakened significantly.
- RSI at 66.72 – Neutral but Showing Weak Buying Conviction – Despite briefly touching oversold territory intraday, the Relative Strength Index (RSI) failed to spark a meaningful rebound.
- Next Critical Support at $4,242 (38.2% Fib Level) – A close below this level could open the door to $4,073 (50% Fib retracement).
Why This Matters for Traders
- Algorithmic Selling Pressure – Many trading bots and institutional systems are programmed to sell when key support levels break, exacerbating declines.
- Potential for Further Losses – If Ethereum fails to reclaim $4,450, the next major support lies at $4,073.
- Bullish Case Still Possible? – A quick recovery above $4,450 could signal a false breakdown and resume the uptrend.
What to Watch Next
- Daily Close Above $4,242 – Holding this level may prevent deeper losses.
- Rejection at $4,450 – If ETH retests this level but fails to break through, it could confirm a bearish trend reversal.
2. Derivatives Market Stress: How $1B+ in Liquidations Worsened the Drop
Overview of ETH Derivatives Activity
The broader crypto derivatives market saw open interest surge 14.55% in 24 hours to $899 billion, while average funding rates dropped 31.39% weekly to +0.0064% (Galaxy Research). Ethereum-specific liquidations totaled $103 million in the past 24 hours, with long positions accounting for the majority of forced selling.
Key Implications
- Rising Open Interest + Falling Funding Rates = New Short Positions – Traders are increasingly betting against ETH, amplifying downside pressure.
- Leverage Magnifies Volatility – Excessive speculative positions lead to sharper corrections when the market turns.
- Potential for a Short Squeeze? – If ETH rebounds, over-leveraged shorts could fuel a rapid upside move.
What to Watch Next
- Funding Rate Flip to Negative – This could signal capitulation and mark a potential bottom.
- Open Interest Decline – A reduction in leveraged positions may stabilize the market.
3. Macro Sentiment Shift: Bitcoin Dominance Rises as Risk Appetite Fades
Overview of Market-Wide Trends
- Bitcoin Dominance Rose to 58.9% (+0.05% in 24h) – Investors are rotating into BTC as a “safe haven” within crypto.
- Altcoin Season Index Fell 8.5% to 43 – Capital is flowing out of altcoins, including Ethereum.
- ETH ETF Inflows Slowed to $152M vs. $1B for BTC – Institutional interest is favoring Bitcoin in the short term.
Why This Matters for Ethereum
- High BTC Correlation (0.89) Magnifies Downside – When Bitcoin weakens, ETH tends to follow.
- Long-Term Bullish Supply Dynamics – $888M in ETH left exchanges this week, reducing available supply.
What to Watch Next
- BTC Dominance Trend – If Bitcoin’s dominance continues rising, ETH may struggle to recover.
- US Macro Data Impact – Upcoming economic reports could influence overall crypto market sentiment.
Conclusion: Is Ethereum’s Pullback a Buying Opportunity or Warning Sign?
Ethereum’s recent decline stems from a mix of technical breakdowns, excessive leverage unwinding, and a risk-off tilt toward Bitcoin. While the short-term outlook appears cautious, several factors could dictate ETH’s next move:
Bullish Factors
✅ Strong Long-Term Fundamentals – Ethereum’s ecosystem growth (DeFi, Layer 2s) remains robust.
✅ Supply Shock Potential – $888M in ETH left exchanges this week, reducing liquid supply.
✅ Institutional Interest Persists – ETH ETFs continue seeing inflows, albeit slower than BTC’s.
Bearish Risks
❌ Further Breakdown Below $4,242 – Could trigger another wave of liquidations.
❌ Continued BTC Dominance Rise – May prolong altcoin underperformance.
❌ Macro Uncertainty – Hawkish Fed policy could pressure risk assets.
Final Verdict
- Short-Term Traders – Watch $4,242 support; a breakdown could lead to $4,073 or lower.
- Long-Term Investors – This dip may offer a strategic accumulation zone before the next uptrend.
- Altcoin Traders – Monitor whether capital returns to ETH or continues flowing into Bitcoin.
Key Question: Will Ethereum reclaim $4,450, or is a deeper correction ahead? The next 48 hours could be decisive.
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