The ETH rally has stalled at key resistance levels according to chains and technical data, but downside risk appears limited based on network activity.
Based on technical and on-chain analysis, the bullish breakout has declined, suggesting that the consolidation below the $2,000 price level could continue in the medium term. At the same time, the lack of sellers and strong fundamentals will likely protect Ether from serious declines.
Ether faces resistance at points of long-term rapid reversal
ETH/USD is up 42.80% since the start of 2023 due to short-term pressure on the altcoin market, negative investor sentiment and illiquid conditions. Based on the chain and the technical level, the rally stopped on an important ascending axis.
Glassnode’s relative unrealized loss metric measures the amount of loss on the books of Ether holders. The orange line represents an ascending pivot line where a unit above this level indicates bearish trends and vice versa. In general, the market begins an uptrend after a break from previous all-time highs or after a long period of consolidation characterized by a significant decline in the unrealized loss metric.
Similarly, from a technical perspective, the Ether Bull failed to break the resistance at 0.082 Bitcoin.
, bringing the price back to the parallel trading range between 0.053 BTC and 0.082 BTC.
Will this time be different?
Based on historical levels, Ether has missed previous lows by a wide margin; The minimum bid-for-profit percentage has been widened to 42.1% compared to the 20-30% used in previous markets. This suggests the potential for more pain for ETH holders. However, trends in the chain show strong performance and buying, which significantly reduces the risk of downside risk.
The change in the net position of Ether on exchanges shows a stark contrast between current and past markets. Between 2018 and 2020, Ether flows into the exchange were significantly higher than outflows, indicating that many buyers transferred their coins to the exchange to sell. However, during the negative period of 2022, even though the price fell, the reversal remained strong, indicating that selling pressure is weak in the current market.
The percentage supply of Ether locked in smart contracts tells a similar story, with a significant drop in Ether locked in smart contracts. The uptrend that started in late 2020 was strong until the downtrend in 2022, indicating that a breakout is not likely anytime soon.
Ether 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 to proof-of-stake in September 2022 was an important event for the network, as it became more environmentally friendly and mainly reduced inflation.
In addition, Ethereum Improvement Proposal 1559, which was implemented earlier in 2022, introduced fee burning for Ethereum, which combined with the post-merger decline helped create asset inflation. The total supply of Ether has decreased by 0.015% since the merger.
However, CoinShares data on fundamental flows into digital asset investment products show that more sophisticated investors have yet to warm to ether, primarily associated with bitcoin. Year-to-date investments in Ether in 2023 were just $8 million, compared to $158 million in bitcoin and $23 million in bitcoin shorts.
Regulatory clarity and Ethereum’s scalability issues are likely to be the main reasons for reluctance among institutional investors. The US Securities and Exchange Commission recently fined Kraken $30 million for offering a stake in ETH, which the regulator considers a security.
Because centralized service providers like Kraken and possibly Coinbase are prohibited from offering these services, institutions may be reluctant to try decentralized liquid staking platforms like Lido and RocketPool.
Ethereum’s extensive gas fees are a long-term challenge that limits mass adoption. The average transaction fee for ERC-20 assets on Ethereum is between $2 and $5, with a simple exchange costing around $5-20.
These fees are much higher than other chains and centralized exchange fees. While developments have occurred in the Layer 2 space, agencies appear to be in a “wait and see” mode when analyzing developments in the crypto space.