The derivatives market for Ethereum (ETH) on Binance reached unprecedented levels on December 19 as the leverage ratio connected to ETH positions soared to its highest point ever.

This surge indicates traders are heavily leaning on borrowed funds despite Ethereum’s unstable price, raising concerns for both potential sharp recoveries and abrupt declines.

Leverage Increases with Renewed Buying Enthusiasm

Per on-chain analytics from CryptoOnchain, Ethereum’s Estimated Leverage Ratio (ELR) on Binance surged to 0.611, marking a record high. This metric gauges the borrowed capital traders are utilizing in comparison to exchange reserves; elevated values signify greater risk across existing positions.

Simultaneously, the ETH Taker Buy/Sell Ratio rose to 1.13, a figure not seen since September 2023. CryptoOnchain noted that a ratio above one indicates buyers are dominant in the market, with traders willing to meet market prices to secure long positions.

“The convergence of these two metrics sends a clear message: traders are not only highly optimistic about ETH’s price action (strong buying pressure) but are also willing to take on massive risks to back this sentiment (historic leverage),” concluded the market analyst.

Some technical analysts also shared this cautious optimism. For instance, Ted Pillows mentioned on X that ETH rebounded after reaching the support levels of $2,700 to $2,800. He suggested that maintaining this zone could lead to a climb towards $3,100–$3,200, while a breakdown could lower prices to around $2,500.

Despite the optimistic outlook, CryptoOnchain warned that this situation is a “double-edged sword.” While it could propel ETH past resistance levels, the accumulation of leveraged positions at such historic highs may expose the market to severe volatility. Even minor corrections could significantly increase the likelihood of a long squeeze.

Price Movements Conflict with Weak Network Indicators

The increase in leverage came just a day after broader concerns were voiced about Ethereum’s deteriorating market structure. Previously reported drops of about 12% over the week, alongside struggles below a critical resistance level around $3,660, could lead to further downward adjustments if support continues to falter.

As of the latest updates, the asset trades just above $2,900, reflecting a 3% increase for the day, although it remains down by roughly 9% over the past week and over 4% monthly. Moreover, the token has lost about a third of its value in the last three months, and it’s approximately 40% below its all-time high of around $5,000 reached in August.

Daily volatility remains high with ETH fluctuating between $2,780 and $3,000 in the past 24 hours, while trading volumes have surged to nearly $39 billion, implying speculative activities that do not indicate steady demand.

This stance aligns with earlier on-chain insights from CryptoOnchain, which indicated a decline in active sending addresses, nearing their lowest point in a year. Retail involvement appears to be diminishing—a pattern often following a prolonged period of price fluctuations. Although such tendencies can align with accumulation by long-term holders, they could also hinder short-term price increases unless new demand arises.