The Ethereum meltdown on September 15 turned out to be a news sell-off, which looks set to continue.
Notably, Ether (ETH) fell sharply against the US Dollar and Bitcoin (BTC) after the merger. As of September 22, the ETH/USD and ETH/BTC trading pairs are down more than 20% and 17%, respectively, since Ethereum’s switch to proof-of-stake (PoS).
What is feeding Ether bulls?
Multiple catalysts contributed to Ether’s declines in the said period. First, ETH’s price decline against the dollar appeared in sync with similar declines elsewhere in the cryptocurrency market, fueled by the Federal Reserve’s 75 basis point (bps) rate hike.
Second, Ethereum faced a lot of criticism for becoming too centralized after the merger.
Just five entities have produced 60% of the blocks so far. Most of it belongs to Lido DAO, an Ethereum staking service, which has 4.19 million ETH on deposit, or more than 30% of the total amount staked in the official Ethereum PoS smart contract.
Third, institutional investors, or “smart money”, also reduced exposure to Ethereum-focused investment vehicles in the day before and after the Merger.
Ethereum funds witnessed $15.4 million worth of capital outflows from their coffers in the week ending September 16, according to CoinShares weekly report. By contrast, Bitcoin-based mutual funds attracted $17.4 million in the same week, suggesting a post-merger migration of capital.
Lastly, Ether also felt extreme selling pressure from its proof-of-work (PoW) miners, who sold $40 million worth of Ether in the days leading up to the PoS upgrade.
Independent market analyst Tuur Demeester he pointed that Ether could continue its decline against Bitcoin in the coming days, citing ETH/BTC’s earlier reaction to key events in the Ethereum market, as shown below.
The chart shows the practice of Ether traders pumping ETH against Bitcoin prior to adoption-related narratives such as the non-fungible tokens (NFTs) and Defi craze of 2021, and the ICO boom of 2017.
All of these rallies fizzled out once the hype wore off. Demeester highlights Ethereum’s switch to PoS as a similar hype phase that pushed ETH/BTC higher in 2022, and expects the pair to undergo a deep correction in the coming weeks.
“I expect ETH/BTC to break violently at some point,” he said, adding:
“ETH is a ticking time bomb.”
ETH/BTC technicals hint at a 10% drop ahead
Placing these fundamentals against the technicals of Ether versus Bitcoin presents a similarly bearish setup.
On the three-day chart, ETH/BTC is down nearly 25% after reaching a high of 0.085 BTC, a level that coincides with its long-running resistance level of 0.081 BTC.
The pair is now eyeing a further drop towards its multi-month rising trendline support, as illustrated below.
The trend line support falls in line with 0.06 BTC, a level that has served as a retracement zone in 2022. In other words, another 10% decline is on the cards.
ETH/USD bearish setup is worse
Against the dollar, Ether could drop as much as 45% due to what appears to be an ascending triangle pattern in a downtrend.
As a general rule, the bearish continuation pattern is resolved after the price breaks below its lower trend line and then falls to its maximum height. Hence, the bearish target is near $700 by the end of this year, 45% below the current price.
Conversely, a pullback from the lower trendline of the triangle could see Ether rally towards the upper trendline, signifying a rally towards $1,775, or a 35% gain from current price levels.
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