The native Ethereum token, Ether (ETH), has lost more than half of its value in 2022 in dollar terms, while losing value against Bitcoin (BTC) and now remains stuck below $2,000 for various reasons.
What is more, the price of ETH could face even bigger losses in June due to a number of other factors, which will be discussed below.
Ethereum funds lose capital en masse
Investors have withdrawn $250 million from Ethereum-based mutual funds in 2022, according to CoinShares weekly market report published May 31.
The massive output appears in contrast to other coins. For example, investors have poured $369 million into Bitcoin-based mutual funds in 2022.
Meanwhile, Solana and Cardano, top-tier blockchain protocols that compete with Ethereum, have attracted $104 million and $9 million, respectively.
The Ethereum withdrawals are a sign of how the recent crash of TerraUSD (UST) and Terra (LUNA) — tokens within the Terra stablecoin algorithmic ecosystem — has dampened interest in the decentralized finance (DeFi) sector in general.
ETH’s bullish outlook remains glued to anticipations of a DeFi market boom as the Ethereum blockchain hosts most of the sector’s financial applications. As of June 5, the total value locked (TVL) within Ethereum-based applications was $68.71 million, nearly 65% of total DeFi TVL.
Nevertheless, TVL continues to reflect a massive pullback in Ethereum DeFi funds, which, prior to the crash of Luna Classic (LUNC) and TerraUSD Classic (USTC) on May 9, hovered around $100 billion.
According to Ilan Solot, a partner at Tagus Capital, macroeconomic risks, led by the Federal Reserve’s restrictive policies, coupled with a cautious outlook around the DeFi sector, mean that Ether is poised to continue its decline in June.
He told the Financial Times:
“If the Fed is tightening, the world is in a recession, and people need to pay $4.5 a gallon for gas, they will have less to invest in DeFi or spend on blockchain games.”
The weakness of the technical data
The trading behavior observed since May also paints a bearish picture for Ethereum.
Specific, Ether has been trading within a range defined by horizontal trendline support and descending trendline resistance. The pattern looks more or less like a “descending triangle”a bearish continuation pattern when it forms during a downtrend.
As a rule of technical analysis, Descending triangles resolve after price decisively breaks below its support trendline and then falls as low as the maximum height of the triangle. Ether is at risk of a similar bearish move in June, as shown in the chart below.
If the price of ETH breaks below the lower trend line of the triangle, it risks falling towards $1,350 in June, down 25% from the current price.
ETH reserves on exchanges are increasing
The total number of Ether balances on cryptocurrency exchanges globally has increased by 550,459 ETH since May, according to CryptoQuant data.
That equates to nearly $950 million in entries in exchanges’ hot wallets since the start of the Terra debacle.
Typically, traders send tokens to exchanges when they want to exchange them for other assets. Therefore, the selling pressure will likely increase if the downward trend of ETH reserves on exchanges starts to reverse.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.