ether (ETH) fell short of a bullish breakout based on technical and chain analysis, suggesting that consolidation below the $2,000 price level could continue in the medium term. At the same time, the lack of sellers and strong fundamentals are likely to protect Ether from sharp declines.
Ethereum is hitting resistance at long-term bullish reversal points
ETH/USD price is up 42.80% since the start of 2023 thanks to a altcoin short squeeze market, negative investor sentiment and low liquidity conditions. Based on the on-chain and technical level, the rally stopped at a key midpoint.
Glassnode’s Relative Unrealized Losses metric measures the extent of losses on the books of ether holders. The orange line represents the center line of a bullish bear, where consolidation above this level indicates bearish trends and vice versa. The market typically begins bullish trends after breaking out of previous all-time highs or consolidating for long periods, as shown by a steep decline in the unrealized loss metric.
Similarly, from a technical perspective, Ether bulls failed to break the resistance at 0.082 BTC, sending the price back to a parallel trading range between 0.053 BTC and 0.082 BTC.
Will the times be different?
Based on historical levels, Ether missed the previous lows by a huge margin, the minimum bid-for-profit percentage increased to 42.1% compared to the 20-30% used during previous bear markets. This suggests the likelihood of more pain ahead for ETH holders. However, on-chain trends show strong activity and buying, which significantly reduces downside risk.
The change in the net position of Ether on the exchanges shows a significant difference between the current and previous bear market. Between 2018 and 2020, Ether inflows to exchanges were significantly higher than outflows, indicating that many holders moved their coins to exchanges to sell them. However, during the negative period of 2022, although the price fell, the exchange outflows remained strong, indicating that the selling pressure is weaker in the current bear market.
The percentage supply of Ether locked in smart contracts tells a similar story, without a significant drop in Ether locked in smart contracts. The uptrend that started in late 2020 has been strong despite declines in 2022, suggesting withdrawals are not likely anytime soon.
Ethereum has a lot going on as the network continues to evolve to support sustainable usage and revenue for Ether holders. Ethereum’s transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) in September 2022 was important event for the network because it has become environmentally friendly and more importantly it has reduced inflation.
In addition, Draft EIP-1559 implemented earlier in 2022 introduced fee burning for Etherum, which combined with the reduced issuance after the merger contributed to the asset becoming deflationary. The total supply of Ether has decreased by approximately 0.015% since the merger.
CoinShares data on institutional flow into digital investment products shows that more sophisticated investors have yet to warm to Ether, they are sticking to Bitcoin in particular. Investment in Ether so far in 2023 was only $8 million, compared to $158 million in Bitcoin and $23 million in Bitcoin shorts.
Regulatory clarity and Ethereum’s scalability issues are likely the main reasons for reluctance among institutional investors. The US SEC recently fined Kraken $30 million for offering ETH bets, which the regulator considered a security.
As well as centralized service providers like Kraken and possibly Coinbase forbidden to offer institutions may be reluctant to try these services decentralized liquid deployment platforms like Lido and Rocket Pool.
Ethereum’s exorbitant gas fees remain a long-standing challenge that limits mass adoption. The average fee for transferring ERC-20 assets to Ethereum is between $2-$5, with simple swaps costing around $5-$20.
These fees are quite high compared to other chains and centralized exchange fees. While developments have been taking place in the Layer 2 space, institutions seem to be in a “wait and see” mode as they analyze the evolution of the crypto space.
The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading step involves risk and readers should do their own research when making decisions.
