Ethereum Rally Faces Risk as US Investors Exit, How Will This Impact ETH's Price?

Leading cryptocurrency, Ethereum (CRYPTO: ETH), has surged by over 40% in the past week, fueled by renewed optimism across the crypto market. At press time, the coin is trading at $2,598 and is steadily above the psychological price point of $2,500.

However, despite the rally, new data from CryptoQuant suggests that this rally may be losing steam, especially as US-based investors appear to be cashing out.

Here’s a look at what happened and what could happen next.

What Happened: According to CryptoQuant, the Coinbase Premium Index for Ethereum reached a weekly high of 0.022 on May 10 and has since been trending downward. At press time, the CPI is at 0.0063.

This new report from the firm comes as Ethereum's price has also risen by 5% over the past week.

The CPI measures the difference between Coinbase's BTC price and the average price on major international exchanges, such as Binance. It serves as a useful indicator for gauging U.S. investor sentiment.

A high CPI indicates that Coinbase is trading at a premium compared to global markets, suggesting strong buying pressure from U.S.-based institutional and retail investors. Conversely, a low or negative CPI signals that demand on Coinbase is lagging behind global markets, possibly due to profit-taking or waning interest among U.S. buyers.

The fact that the CPI is decreasing despite Ethereum's price rally implies that American investors are exiting their positions and taking profits, rather than buying into the rally.

This observation is further supported by the readings from Ethereum's Price-to-Daily Active Addresses divergence, an on-chain metric that compares price movement with network activity. As per Santiment, this metric has been in the negative territory for the past few days even as Ethereum's price edges higher. At press time, the metric stands at -58.2%.

A negative value for this metric indicates that a corresponding rise in user engagement is not supporting the recent price gains. In essence, not enough demand is driving Ethereum's rally, which might risk a pullback in the near term.

What's Next For Ethereum: If the bulls manage to defend the price action and if the buyers return, then Ethereum could make another attempt to reach the resistance level of $2,745.

However, if the bears overwhelm the bulls and if the sellers return, then Ethereum's price could fall to the support level of $2,424.

If this level breaks, then a deeper drop to $2,243 could be possible.

At press time, Ethereum is trading at $2,598. The coin is trading just below the multi-month resistance formed at $2,725.

As US-based investors appear to be locking in profits, the chart shows that the price is facing increasing pressure to move lower. A move lower could see the coin's price fall to $2,424.

However, if the bulls manage to defend this level, then the coin's price could rise again to test the resistance level at $2,745.