Ethereum [ETH] saw a significant pullback in the final week of August, erasing most of the gains it had made earlier in the month when it tested the $2,700 resistance level. However, September began with a change in sentiment as ETH climbed over 3% in the past 24 hours, trading at $2,521 at the time of writing.

Interestingly, this price surge occurred even as the altcoin season index declined, indicating that investor confidence in the bullish trend remained weak.

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Rising ETH Exchange Reserves

A prominent crypto analyst pointed out a key development suggesting a distribution phase may be underway. The spike in ETH exchange reserves indicates that more traders are taking profits by moving their holdings to exchanges, potentially ahead of a broader sell-off.

Analysis from AMBCrypto highlighted a pattern where ETH’s price nearing resistance levels coincided with increased exchange reserves. For example, when ETH approached the $4,050 resistance in March, exchange reserves rose from $19.5 million to $20.8 million. Similarly, when ETH broke above $2,800 last month, higher reserves created resistance, capping further price gains and leading to a retrace to the $2,390 support level.

Since then, bulls have been anticipating a correction, and the recent 3% surge could be seen as a potential rally signal. However, a sustained uptrend remains uncertain.

No Assurance of a Bullish Rally

The latest data showed exchange reserves rising from $18.5 million to $18.7 million the day after ETH’s September 2nd surge, reflecting a common day trading strategy of locking in gains at the first sign of a price uptick. For a true bullish trend to emerge, new market participants must enter while long-term holders refrain from selling.

AMBCrypto also observed an increase in Open Interest (OI) among Futures traders, with OI reaching $10.72 billion—a 0.37% increase from the previous day. Despite this growth, a more substantial OI surge would be necessary to support a sustained bullish movement. While Futures traders remain cautious, long-term holders have been selling portions of their holdings, signaling a bearish outlook. On August 23, the age-consumed metric spiked to $629 million, leading to a subsequent price drop.

Additionally, a negative Market Value to Realized Value (MVRV) ratio suggests that ETH may be undervalued, potentially creating a buying opportunity. However, without a notable rise in Open Interest, it seems the true value of ETH has yet to be fully recognized.

Moreover, AMBCrypto noted that the recent 3% surge could be a temporary spike, resulting in $34 million in short liquidations and pushing ETH to test the critical $2,500 level. Without strong buying activity, the likelihood of a breakout diminishes. Should buying activity fail to pick up, ETH could face approximately $40 million in long liquidations if it falls below the $2,500 support, potentially retracing back to $2,300.