Ethereum’s native token Ether, (ETH), slumped June 16th. This suggests that the Federal Reserve’s announcement of a 0.75% increase in the benchmark rate and its relief rally coincidentally with it is at risk.
Are Ether bulls in danger?
Ether’s price fell by 9.2% to $1,120 per token one day after rebounding by 23% from its January 2021 low of almost $1,000. This was its lowest level since January 2021.
The ETH/USD pair’s sharp correction was followed by a sharp move up, confirming that it trades like a risk-asset.
Daily correlation coefficient between ETH/USD (Nadaq) Source: TradingView
This means Ether has lost 77% of its value in the past November 2021. Ether is currently trading below its “realized cost” of $1740, according to data from Glassnode.
Ethereum realized price (USD). Source: Glassnode
A higher interest rate environment creates additional selling pressure. Investors are forced to abandon high-risk trades in favor of traditional hedging assets like cash.
Investors’ trust in cryptocurrency has also been eroded by the collapse of Terra, an algorithmic stablecoin project worth $40 billion, and Celsius Network’s decision not to allow withdrawals.
Three Arrow Capital, a cryptocurrency hedge fund that managed nearly $10 billion in May 2022 and is now facing insolvency risks, sits atop this list. Ether has been negatively impacted by systemic fears, which have further limited the market’s recovery bias.
ALERT: 3AC $250 million $ETH Position Will be Liquidated at 1000
Market Meditations (@MrktMeditations), June 15, 2022
Technically, Ether’s recent gains seem like a bearish market rally. This could be because investors have covered their short trades.
Investors close short positions by purchasing the underlying asset back from the market, usually at a lower price than the one they borrowed at the time. Then they return them to their lender. This causes the asset to rally in between large downmoves, but does not signal a bullish reversal.
Related: Blocktower founder Blocktower says that Bitcoin is the “Amazon of crypto” and all other bets are made on it.
Investors who mistakenly believe that the rebound is a sign of bottoming could fall for these minor rallies.
However, the pump can be used by experienced bears to open short positions at the local price peak, knowing that the market has not fundamentally changed.
ETH “bear pennant”, hints at greater losses ahead
A bull trap scenario is also supported by Ether’s bear pennant on shorter timeframe charts.
Bear pennants refer to bearish continuation patterns. They form when the price consolidates within a triangle-shaped structure following a strong downward move.
Technical analysis dictates that traders determine a bear pennant’s profit target by subtracting the breakdow point (or “flagpole”) from the height of previous declines.
Four-hour chart of the USD/ETH price with “bear pennant” Source: TradingView
Thi sets the next bear price target for ETH at $850. This is almost 25% lower than today’s price.
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