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Ethereum

Ethereum Shows Red Flags Following 60% Rally

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Key Takeaways

  • Ethereum has gained over 1,200 points since Jul. 22.
  • Multiple indexes now anticipate a correction given the significant gains.
  • Transaction history shows that ETH’s downside potential might be capped at $2,770.

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Market participants have rushed to buy ETH following Ethereum’s much-anticipated London hardfork. Although prices have risen due to the growing demand, some technical and on-chain metrics suggest that a spike in profit-taking is underway. 

Sell Signals Appear for Ethereum

Despite the bullish momentum, Ethereum could be facing an imminent correction.

ETH has enjoyed an impressive run-up after breaking out of a descending triangle on Jul. 22. Since then, the second-largest cryptocurrency by market cap has surged by nearly 60% to reach a high of $3,200. Now that the projected target has been met, multiple red flags are beginning to pop up.

The Tom DeMark (TD) Sequential indicator has presented a sell signal on ETH’s daily chart. The bearish formation developed as a green nine candlestick, anticipating a one to four daily candlesticks correction or the beginning of a new downward countdown. 

Source: TradingView

Ethereum’s Market Value to Realized Value or MVRV adds credence to the pessimistic outlook. This on-chain metric quantifies the average profit or loss of all addresses that have purchased ETH within a specific period.

The 30-day MVRV ratio is currently hovering at 26.58%, suggesting that all addresses that have bought ETH in the past 30 days sit at an average profit of 26.58%. According to behavior analytics platform Santiment, the higher the MVRV ratio, “the higher the risk that Ethereum holders will begin to sell and reduce their exposure.”

Source: Santiment

Given the significant unrealized profits among ETH holders, Ethereum is currently in a danger zone. Historical trends indicate that a spike in profit-taking may be underway, translating into a short-term correction.

Ethereum Sits on Top of Stable Support

IntoTheBlock’s In/Out of the Money Around Price (IOMAP) model reveals that Ethereum is sitting on top of multiple demand barriers that could prevent it from a sudden downswing. 

The first significant interest area is between $2,960 and $3,050, where nearly 320,000 addresses have previously purchased over 1.4 million ETH. The second and most crucial support barrier lies between $2,670 and $2,860. Around this price point, more than 1.12 million addresses have acquired 2.63 million ETH. 

Such a critical support wall suggests that a spike in selling pressure could be short-lived as the bears may struggle to push prices down. 

Source: IntoTheBlock

On the other hand, the IOMAP model shows no supply barrier will prevent the second-largest cryptocurrency by market cap from advancing further. There is only one area of interest between $3,340 and $3,430, where over 360,000 addresses are holding nearly 390,000 ETH.

This supply zone may have the ability to absorb some of the recent buying pressure, but if ETH can slice through this hurdle, it could climb to $3,500.

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Ethereum

Former Goldman Sachs Exec Raoul Pal Says Ethereum Is the ‘Greatest Trade’

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Former Goldman Sachs executive Raoul Pal has revealed he believes Ethereum is the “greatest trade” setup that he has ever seen as the cryptocurrency’s fundamentals suggest it has a large upside ahead of it.

In a recent interview, first spotted by Daily Hodl, Pal revealed that Ethereum’s fundamentals are forming, in his opinion, a better setup than the one Bitcoin had in March 2020, when its price plunged over 50% to $4,000 before it recovered. Since then, the price of BTC surged to hit a new all-time high near $64,000.

While the flagship cryptocurrency endured a massive correction after hitting its new all-time high, it’s still trading above $45,000 according to CryptoCompare data. Pal’s words, as such, suggest he believes Ethereum could move up over 10x, from its current $3,000 level.

Pal said that around 13% of Ethereum’s free float is currently available, while everything else is “being staked, locked, and hoarded.” This, he says, reduces the supply of available ETH – something he says has been steadily happening.

Addressing the rollout of Ethereum Improvement Proposal (EIP) 1559 on the network’s London hard fork, he said most people are now going to start staking their ETH ahead of the launch of Ethereum 2.0, to the point there’s no more ETH supply available to meet demand.

He added:

Exponential demand meets fixed supply equals exponential price rise. One of the best setups I’ve ever seen.




EIP-1559 has introduced a transaction fee burning mechanism to the cryptocurrency’s network, designed to make fees easier to use and help it deal with high demand. Ethereum transactions now require a base fee to be burned, and users can tip miners if they want them to process their transactions faster.

The base fee rises when there’s higher demand, and lowers when demand drops. According to a burn tracker, over 17,600 ETH have been burned at press time, with a burn rate of about 2.81 ETH per minute. Around 5.5 ETH are being minted every minute.

As CryptoGlobe reported, Raoul Pal has in the past revealed he believes the price of Ethereum (ETH), the second-largest cryptocurrency by market capitalization, could go to $20,000 “this cycle,” based on Metcalfe’s Law.

Metcalfe’s Law, it’s worth noting, states the effect of a network is proportional to the square of the number of nodes in said network.  Pal added charts showing that Ethereum’s growth is very similar to that of BTC and that Metcalfe’s Law “seems to be the key to price for both ETH and BTC.”

DISCLAIMER
The views and opinions expressed by the author, or any people mentioned in this article, are for informational purposes only, and they do not constitute financial, investment, or other advice. Investing in or trading cryptoassets comes with a risk of financial loss.

IMAGE CREDIT
Featured image via Unsplash

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Ethereum

Ethereum (ETH) Back Below $3K, Why Rally Isn’t Over Yet

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Ethereum started a strong rally above the $3,000 resistance against the US Dollar. ETH price is now correcting gains, but it is likely to find bids near $2,840.

  • Ethereum gained pace after it broke the key $2,840 resistance zone.
  • The price is now trading above $2,900 and the 100 hourly simple moving average.
  • There was a break below a key bullish trend line with support near $2,980 on the hourly chart of ETH/USD (data feed via Kraken).
  • The pair is correcting gains, but there is a strong support waiting near $2,800.

Ethereum Price Corrects Gains

Ethereum started a strong rally above the $2,700 and $2,850 resistance levels. ETH price even broke the $3,000 barrier and it settled nicely above the 100 hourly simple moving average.

It traded to a new multi-week high at $3,190 before there was a downside correction. The price traded below the $3,000 support zone. There was a break below the 23.6% Fib retracement level of the recent surge from the $2,725 swing low to $3,190 high.

Besides, there was a break below a key bullish trend line with support near $2,980 on the hourly chart of ETH/USD. Ether is now trading above $2,900 and the 100 hourly simple moving average.

It is finding bids near the 50% Fib retracement level of the recent surge from the $2,725 swing low to $3,190 high. On the upside, an immediate resistance is near the $3,000 level. The next key resistance is near the $3,050 level.

Ethereum Price

Source: ETHUSD on TradingView.com

A clear break and close above the $3,000 and $3,050 resistance levels might start another increase. In the stated case, the price could rally above $3,200. The next stop for the bulls may possibly be near the $3,400 level.

Dips Limited in ETH?

If ethereum fails to continue higher above the $3,000 and $3,050 resistance levels, it could start an extended downside correction. An immediate support on the downside is near the $2,900 level.

The next major support is near the $2,840 level. It is near the 76.4% Fib retracement level of the recent surge from the $2,725 swing low to $3,190 high. Any more losses could lead the price towards the $2,740 support zone.

Technical Indicators

Hourly MACDThe MACD for ETH/USD is slowly losing pace in the bearish zone.

Hourly RSIThe RSI for ETH/USD is now below the 50 level.

Major Support Level – $2,840

Major Resistance Level – $3,050

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Ethereum

3 reasons why Ethereum is unlikely to flip Bitcoin any time soon

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After a 13% rise in two days, Bitcoin’s (BTC) market capitalization surpassed $800 billion to reach its highest value in 79 days. During the same timeframe, Ether (ETH) accumulated a 45% gain in two weeks, placing the network’s market capitalization at $340 billion. 

Positive expectations for the London hard fork and its potential deflationary effect undoubtedly played a role, but some investors continue to question how Ether’s valuation stacks against Bitcoin. Some, including Pantera Capital CEO Dan Morehead, expect Ether to outpace Bitcoin as the largest cryptocurrency.

Market participants may have also been excited after Minneapolis Federal Reserve President Neel Kashkari suggested that the Fed may stick with the asset-purchase program a bit longer. The reason cited was the Delta variant’s spread and its potential harm to the labor market.

Kashkari said:

“Delta could discourage people from returning to jobs that require in-person interaction and keep kids out of schools.”

Extending the stimulus for longer raises the inflationary risk, which increases the attractiveness of scarce assets like real estate, commodities, stocks, and cryptocurrencies. However, the impact of these macroeconomic changes should equally impact Bitcoin and Ether.

Active addresses give Bitcoin a clear lead

Comparing some of Ethereum’s metrics could shed some light on whether Ether’s 58% discount is justified. The first step should be to measure the number of active addresses, excluding low amounts.

Addresses with $1,000 or higher balances. Source: CoinMetrics

As shown above, Bitcoin has 6 million addresses worth $1,000 or higher, and 3.67 million have been created since 2020. Meanwhile, Ether has less than half at 2.7 million addresses with $1,000. The altcoin’s growth has also been slower, with 2.4 million of those created since 2020.

This metric is 55% lower for Ether, and this corroborates the market capitalization gap. However, this analysis does not include how much large clients have invested. Although there is no good way to estimate this number, measuring cryptocurrency exchange-traded products could be a good proxy.

Ether lags on exchange-traded products

Publicly traded crypto products. Source: Bloomberg and Investing.com

After aggregating data from multiple exchange-traded instruments, the result is telling. Bitcoin dominates with $32.3 billion in assets under management, while Ether totals $11.7 billion. Grayscale GBTC plays a vital role in this discrepancy because its product was launched in September 2013.

Meanwhile, Ether’s first exchange-traded product came in October 2017, when the XBT Provider Ether Tracker was launched. This difference partially explains why Ether’s total is 64% lower than Bitcoin’s.

Futures open interest justifies the price gap

Lastly, one should compare the futures markets data. Open interest is the best metric of professional investors’ actual positions because it measures market participants’ total number of contracts.

An investor could have bought $50 million worth of futures and sold the entire position a couple of days later. This $100 million in traded volume does not currently represent any market exposure; therefore, it should be disregarded.

Bitcoin futures aggregate open interest. Source: Bybt

Bitcoin futures open interest currently amounts to $14.2 billion, down from a $27.7 billion peak on April 13. Binance exchange leads with $3.4 billion, followed by FTX with another $2.3 billion.

Ether futures aggregate open interest. Source: Bybt

On the other hand, the open interest on Ether futures peaked about a month later at $10.8 billion, and the indicator currently stands at $7.6 billion. Therefore, it is 46% lower than Bitcoin’s, which further explains the valuation discount.

Related: Ethereum market cap hits $337 billion, surpassing Nestle, P&G, and Roche

Other metrics like on-chain data and miner revenues show a more balanced situation, but both cryptocurrencies have different use cases. For example, 54% of the Bitcoin supply has remained untouched for longer than one year.

The truth is that any indicator has a downside, and there is no definitive valuation metric to determine whether a cryptocurrency is above or below its fair value. However, the three metrics analyzed suggest that Ether’s upside, when priced in Bitcoin, does not signal a “flippening” anytime soon.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.