Ether (ETH) failed to break out bullish 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 Ether from sharp declines.
Ether finds resistance at long-term bullish reversal points
ETH/USD is up 42.80% since early 2023 thanks to a brief contraction in the altcoin market, negative investor sentiment, and low liquidity conditions. Based on technical and on-chain levels, the rally was halted at a crucial bullish-bearish pivot.
Glassnode’s Relative Unrealized Loss metric measures the scale of losses on Ether holders’ books. The orange line represents the bullish-bearish pivot line, where consolidation above this level means bearish trends and vice versa. Typically, the market begins trending up after a breakout from previous all-time highs or consolidation for long periods, manifested by 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 BTC and 0.082 BTC.
This time it will be different?
Based on historical levels, Ether missed previous lower levels by a wide margin; the minimum bid-to-profit percentage was extended to 42.1% compared to the 20-30% taken during previous bear markets. It suggests the likelihood of more pain to come for ETH holders. However, on-chain trends show strong 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 inflows to exchanges were significantly higher than outflows, indicating that many holders moved their coins onto exchanges to sell. However, during the negative period of 2022, although the price fell, the currency outflows remained strong, which suggests that the selling pressure is weaker in the current bear market.
The percentage supply of Ether 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 downturns of 2022, suggesting that withdrawals are unlikely anytime soon.
There is a lot going on in Ether 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 friendly to the environment and, more importantly, reduced inflation.
In addition, the Ethereum Improvement Proposal 1559 implemented in early 2022 introduced fee burning for Etherum, which, combined with reduced issuance after the Merger, contributed to making the asset deflationary. The total supply of Ether is down around 0.015% since the merger.
However, CoinShares data on institutional flow in digital asset investment products shows that more sophisticated investors have yet to warm up to Ether, focusing primarily on Bitcoin. The year-to-date investment in Ether in 2023 has been just $8 million, compared to $158 million in Bitcoin and $23 million in Bitcoin shorts.
Regulatory clarity and Ethereum’s scalability challenges are likely the key reasons behind the reluctance among institutional investors. The United States Securities and Exchange Commission recently fined Kraken $30 million for offering stake in ETH, which the regulatory body deemed a security.
As centralized service providers like Kraken and possibly Coinbase are forbidden to offer these services, institutions may be reluctant to try decentralized liquid staking platforms, such as Lido and Rocket Pool.
Exuberant gas fees on Ethereum remain a longstanding challenge limiting mass adoption. The average transfer fee for ERC-20 assets on Ethereum ranges from $2 to $5, with simple swaps costing around $5 to $20.
These charges are considerably high compared to other chains and centralized exchange fees. While development has occurred in the Layer 2 space, institutions seem to be in a “wait and see” mode as they look at the development of the crypto space.
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