Is Ethereum Set for a Breakout Above $4K?

• Ethereum forms a bullish reversal pattern with key resistance and support levels.
• Sustained exchange outflows suggest a potential supply squeeze and rising demand.

Ethereum ($ETH) is currently trading at $3,433, experiencing a 2% decline in the past 24 hours with trading volume down 18%. Over the last week, the asset has dropped by 7%, and on December 20, it fell below the support zone of $3,101, a level not seen for over a month. The daily Relative Strength Index (RSI) stands at 44, indicating that Ethereum is approaching oversold conditions. This suggests the possibility of a short-term rebound if buying interest returns.

Ethereum’s price chart forms a Descending Right Angle Broadening formation, often interpreted as a bullish reversal pattern. This structure consists of two diverging lines—one acting as horizontal resistance and the other as a bearish downward-sloping support. The pattern resembles an inverted ascending triangle, a setup that often leads to upward price movements once it breaks above resistance. Key levels to monitor are resistance at $3,713 (R1) and $4,159 (R2), with support at $3,136 (S1) and $2,953 (S2).

Meanwhile, Ethereum’s on-chain data reflects a significant reduction in exchange supply. Following last week’s record-breaking net outflow of $1.2 billion—the largest exchange withdrawal in Ethereum’s history—another $35.93 million worth of $ETH has been withdrawn from exchanges since the start of the week, according to Coinglass. This decline in available $ETH and sustained negative exchange netflows could result in a supply squeeze, as demand increases while availability shrinks.

Funding Rates and Market Sentiment

Ethereum’s funding rate has moved into positive territory at 0.0089%, indicating that long traders are becoming more dominant. This suggests a shift in market sentiment towards bullishness.

$ETH is currently trading above the Ichimoku Cloud, a technical indicator that signals strong support. However, should bearish forces regain control, Ethereum could see a decline toward $3,111, with a potential dip below $3,000 if selling pressure intensifies.