The overheated leverage in Ethereum (ETH) futures has cooled significantly, a move interpreted by on-chain analysts as a sign of market stabilization rather than a bearish signal. According to a CryptoQuant analysis by Darkfost, ETH has been trading sideways between $2,250 and $2,450 for nearly a month, following a 33% rally from its February lows.
During that rally, ETH open interest surged by $4.5 billion, and the Binance leverage ratio peaked at 0.76 on March 16, an indicator of an over-leveraged market. Despite this, funding rates remained mostly negative, showing a dominance of short positions. That dynamic has since reversed: as ETH retested $2,450 resistance, the Binance leverage ratio dropped to 0.57, and funding rates turned positive — a typical sign of growing long positions. Darkfost suggests the market rapidly cleared long positions that had bet on a breakout, followed by liquidation of accumulated shorts.
The analyst stressed that lower leverage is not a short-term bearish indicator. Instead, it shows the market cooling from an overheated state, reducing the risk of cascading liquidations. For a genuine upward breakout to occur, he believes an influx of spot buying pressure is needed, not just derivatives activity. With many traders waiting on the sidelines during the current choppy trend, the cooling leverage may set the stage for a more sustainable move, but decisive momentum remains elusive.
