Ethereum support ready to drop?
For the past week, Ethereum has hovered between $1,600 and $1,750. However, many indicators seem to show that this support remains fragile and could soon give way under pressure. A return to the $1,200 would then be considered.
Ethereum in net form revival
Ethereum has been experiencing better days for a few weeks. Its price is up by 60% since May 3 and it pretty clearly forms its rival of always Bitcoin. This price increase is partly linked to the imminent arrival of the Merge, for the time announced on September 19.
This switch of the Ethereum network from a mechanism proof of work to a mechanism proof ok stake whets the appetite of many investors. The various tests, on the many tenets of Ethereum, have been carried out successfully, and optimism is essential. Many analysts expect Ether’s supply to drop by almost 90% causing strong buyer pressure on the token!
Another positive indicator for the network is that all locked assets, the TVL for Total Value Locked, took advantage of the collapse of the Terra ecosystem to welcome new funds. Ethereum thus confirms its position as the undisputed leader in decentralized finance with nearly 59% of the total LTV of the challenge, up 51% since May 3, according to the specialized website Defillama.com.
However, it is necessary to remember that the amount of these assets has melted like snow in the sun since the recent crypto crash. The amount blocked on Ethereum smarts contracts was 100 billion in December 2021, it is now only 40 billion today... Similarly, the average cost of gas dropped to 90 when it was $7.50 at the beginning of the month. A sign that the network is no longer congested but because it attracts fewer users.
Traders Waiting and Cautious
To get a better understanding of the market sentiment, it is always interesting to look at the derivatives markets. One of the first indicators we can use is the delta skew. When traders expect asset prices to rise, this indicator drops below -12%. Conversely, when it exceeds 12%, it is often a sign of a bearish trend.
At present, we are below 12% after having exceeded 30% in mid-June. Traders are therefore quite confident for the rest of the Ether movement.
Another indicator that may be particularly relevant for observing market sentiment is leveraged markets. This practice allows traders to have more capital available through leverage. A more risky practice that should be reserved for professionals in the sector. Bitfinex is an exchange known for offering a fairly detailed view of this market, especially on large accounts with large positions taken by traders and whales. Long positions peaked on July 2nd with 500,000 ETH, the highest level since November 2021.
Recently, these positions have been reduced to support $1,600. Traders seem to fear a potential bearish move and have therefore limited their exposure over time to better protect themselves in the event of a further fall. If this support were to fail, Ethereum would surely revisit the bottom of the previous range, namely the $1,200 zone, an old resistance successfully crossed in mid-July. The overall market appears to be particularly difficult to read as the indicators do not provide a clear direction.
In addition, the general economy but also geopolitical context remain particularly tense and many observers still expect many shocks at the end of the year, both in the crypto market and in traditional markets. However, as mentioned earlier, the Merge should allow Ethereum to get off at least for a while. If everything goes as planned for the leader in smart contracts, it will be a strong signal sent to the market that will surely attract many buyers!
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