Ethereum [ETH]’s price action may have delivered a slight upside so far since the end of August. Its price action seems less excited than anticipated especially now that the Merge is less than two weeks away. Is it because of lack of enough buying pressure or is there something more to this performance?

Secrets unveiled

ETH’s prevailing narrative for the last few week has been centered on the Merge. As is often the case, a rally is expected in the weeks or days prior to a major upgrade and then investors sell the news. The Merge is now less than two weeks away and ETH’s price has been touching bearish territories.

One possible reason for ETH’s subdued price is the liquidation of leveraged long positions. It registered strong demand in August, especially in the first half of the month, before a sizable pullback. ETH’s leveraged ratio registered a sharp uptick in the first half of August, followed by a sizable pullback. This confirms that the use of leverage as price started to pick.

Source: CryptoQuant

The next major leverage ratio increase occurred in towards the end of the month, but it has since then declined. A drop in the Ethereum funding rates proceeded each leverage ratio pullback. This outcome is consistent with ETH’s bearish days during the month.

ETH’s performance on 19 August was among the best examples of an instance where leveraged long liquidations subdued the price action. The price had cooled down after briefly entering overbought territory towards mid-August and leveraged traders started increasing their positions.

Source: Glassnode

The market registered its largest ETH leveraged long liquidations on 19 August and this created a strong wave of sell pressure. A similar incident occurred on 26 August where longs increased followed by another major spike in the longs liquidations.

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One notable observation is that there was diversion between ETH’s funding rates and estimated leveraged ratio. Similarly, the futures open interest and futures long liquidations metrics demonstrated divergence.

Traders should thus consider observing the aforementioned metrics to determine healthy entry or exit points. Other market forces have also been at play in curtailing ETH’s potential upside but long liquidations have clearly played a part.