Ethereum Defies Market Downturn: On-Chain Data Hints at Hidden Strength (Or Impending Reality Check?)

While red dominates crypto charts, ETH's resilience raises eyebrows—and questions.

The bullish case: Network activity ticks upward as weak hands exit. Smart contract deployments hit a three-week high, and gas fees stabilize near yearly lows—classic accumulation signals.

The bearish reality: Exchange inflows spike 40% since Tuesday. That 'diamond hand' wallet? Just moved 12,000 ETH to Binance. (Cue the 'for security reasons' tweet.)

One hedge fund manager (who absolutely didn't just liquidate his position) insists: 'This is textbook healthy correction territory.' Meanwhile, decentralized derivatives show traders loading up on sub-$2,800 put options—a hedge against what exactly?

As always in crypto: The chain never lies, but everyone lies about what it's saying. Tick tock, ETF clock.

Short Squeezes and Whale Activity Shape Ethereum’s Recent Rally

Amr Taha, a contributor on CryptoQuant’s QuickTake platform, highlighted the significance of Ethereum’s recent price action. Taha noted that a sudden breakout above $3,700 resulted in over $160 million in short positions being liquidated on Binance.

This event followed an earlier wave of $195 million in short liquidations NEAR the $3,500 mark, pointing to a pattern of cascading short squeezes. As short-sellers rushed to cover their positions, this led to additional upward price momentum, at least temporarily.

Taha also observed a notable divergence in whale activity across assets. According to data from the Whales Screener, there was a net inflow of over $300 million worth of Bitcoin to centralized exchanges. At the same time, over $300 million in stablecoins was withdrawn from exchanges.

This combination may reflect a cautious outlook, as whales potentially prepare to sell bitcoin while simultaneously reducing available liquidity for immediate buy-side activity.

Taha cautioned that such short squeezes can result in brief periods of elevated prices, often followed by consolidation or correction.

He identified several signs suggesting potential short-term headwinds: a drop in open interest following the liquidation cascade, whale deposits of BTC possibly in preparation for selling, and reduced exchange balances of stablecoins indicating limited new capital entering the market. “These conditions combined could contribute to a pullback if fresh inflows don’t materialize,” Taha wrote.

ETH’s Outlook as Market Enters Second Half of 2025

In a separate analysis, another CryptoQuant analyst crypto Dan provided a broader perspective on Ethereum’s trajectory. While acknowledging that the recent price surge may introduce short-term correction risk, Dan argued that market indicators suggest this would likely be limited in scope.

Comparing current conditions to historical futures market overheating in March and November 2024, Dan pointed out that current leverage and sentiment levels remain relatively muted.

He also noted that Ethereum’s performance has been restrained throughout this upcycle, even reaching undervalued levels at times. This could indicate that the asset still has room to rise, especially in the second half of 2025.

If Ethereum continues to climb, Dan suggested it could also serve as a catalyst for altcoin activity, given their tendency to follow ETH movements in bull phases.

Featured image created with DALL-E, Chart from TradingView