Ether (ETH) fell short of a bullish breakout based on on-chain and technical analysis, suggesting that consolidation below the $2,000 price level could continue over the medium term. At the same time, the lack of sellers and strong fundamentals will likely protect the Ether price from steep declines.
Ether finds resistance at long-term bullish reversal points
The ETH/USD pair is up 42.80% since early 2023 thanks to a short squeeze in the altcoin market, negative investor sentiment, and low liquidity conditions. Based on on-chain and technical levels, the rally has stalled at a crucial bullish-bearish pivot.
The m Glassnode measures the scale of losses on the books of Ether holders. The orange line represents the bullish-bearish pivot line, where consolidation above this level means bearish trends and vice versa. The market typically initiates uptrends after breaching previous all-time highs or consolidating for long periods, resulting in a sharp drop in the unrealized loss metric.
Similarly, from a technical perspective, Ether bulls failed to break above the 0.082 Bitcoin ((BTC) resistance, which returned the price to the parallel trading range between 0.053 and 0.082 BTC.
This time it will be different?
Based on historical levels, Ether missed previous lows by a huge margin; the minimum supply percentage in profit was extended to 42.1% compared to the 20%-30% tapped during previous bear markets. This suggests the likelihood of more pain ahead for ETH holders. However, on-chain trends show robust activity and buying, significantly reducing downside risk.
Ether’s net position change on exchanges shows a marked difference between the current and previous bear markets. Between 2018 and 2020, Ether deposits to exchanges were significantly higher than withdrawals, indicating that many holders moved their coins to exchanges to sell. However, during the 2022 bear period, although the price fell, exchange withdrawals remained strong, suggesting that selling pressure is weaker in the current bear market.
The percentage of Ether supply locked in smart contracts tells a similar story, with no significant declines in Ether locked in smart contracts. The uptrend that began in late 2020 remained strong through the dips of 2022, suggesting that withdrawals are unlikely in the near future.
Ether has a lot to do as the network continues to evolve to support sustainable use and returns for Ether holders. Ethereum’s switch from proof-of-work to proof-of-stake in September 2022 was a momentous event for the network, as it became environmentally friendly and, more importantly, reduced token inflation.
In addition, the Ethereum Improvement Proposal 1559 implemented in early 2022 introduced Etherum rate burning, which, combined with reduced issuance following The Merge, contributed to the asset becoming deflationary. The total supply of Ether has fallen by around 0.015% since the arrival of The Merge.
However, CoinShares data on institutional flow into digital asset investment products shows that more sophisticated investors have not yet taken an interest in Ether, sticking mainly to Bitcoin. Year-to-date investment in Ether in 2023 has been just $8 million, versus $158 million in Bitcoin and $23 million in Bitcoin shorts.
Regulatory clarity and Ethereum’s scalability issues are probably the main reasons for reluctance from institutional investors. The United States Securities and Exchange Commission recently fined Kraken $30 million for offering ETH staking services, which the regulator deemed a security.
Since centralized service providers like Kraken and possibly Coinbase are prohibited from offering these services, entities may be reluctant to try decentralized liquid staking platforms such as Lido and Rocket Pool.
The exuberant gas fees on Ethereum remain a longstanding challenge that is limiting mass adoption. The average fee for ERC-20 asset transfers on Ethereum ranges from $2-$5, with simple trades costing around $5-20.
These fees are considerably high compared to other chains and fees from centralized exchanges. Although there has been development throughout the Layer 2 space, institutions appear to be holding their own as they look at the development of the crypto space.
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