Key Highlights:
- Ethereum appears bound for a three-digit price tag;Ethereum will be 3 digits soon?
- Ethereum is struggling price-wise, and the recent Merge did not help;
- CoinShares report shows institutional investors are placing aggressively bearish bets;
- Ethereum’s open interest confirms bearish sentiment,
- Viewing Ethereum through the technical analysis lens.
Bound for Three-Digit: Ethereum will be 3 digits soon?
Source: Shutterstock
Despite witnessing one of the most game-changing moments in crypto history, The Merge, Ethereum (ETH), remains on the precipice as analysts conclude that a return into the three-digit territory is on the horizon.
In mid-June this year, Ethereum fell to a low of $880, after losing a handle on the $1,900 price range in the same month. ETH shed over 50% on this fall alone but was quick to post a recovery back above the $1,000 mark.
Source: CoinMarketCap | ETH/USD YTD Chart
However, five months later, Ethereum appears to be on the brink of falling below the critical $1,000 mark again. This comes amid worsening bear market conditions and weakening sentiment.
Meanwhile, the controversial Ethereum Merge, which went live on the mainnet on September 15, transitioned the Ethereum blockchain from a proof-of-work (PoW) consensus mechanism to a more scalable proof-of-stake validation method.
Apart from the fact that the Merge failed to yield the expected reaction, it did the exact opposite. Shortly after the upgrade went live, Ethereum suffered a sharp decline as investors piled on their bearish bets.
At the time of writing, ETH trades around the $1,200 level, with bets on further declines on the rise.
The CoinShares Report
According to a November 21 report from CoinShares, a European-based investment and trading group, more and more institutional investors are betting against the price of cryptocurrencies, including Ethereum, going down. CoinShares noted that these bets by institutional investors were at a peak level in the crypto market.
The report detailed that institutional investor sentiment was “deeply negative,” adding that inflows into short (sell) products accounted for a whopping 75% of total inflows into the market, an all-time high for the industry.
Source: Twitter
The CoinShares report further detailed that assets under management (AUM) in cryptocurrency products had tapped a two-year low of $22 billion, which indicates that the aggregate sentiment for crypto assets such as Ethereum was bearish.
In terms of inflows into short products, the report revealed that in the third week of November, institutional investors channeled about $14 million into short Ethereum products.
Highlighting the culprit for the influx of money into short products, CoinShares fingered the FTX collapse as the major catalyst.
Sentiment Analysis: The Ethereum Open Interest Argument
One of the noticeable effects of the FTX crash and subsequent bankruptcy filing is the massive liquidations recorded in the crypto derivative market.
Since the beginning of the current cycle, the perpetual futures market has played a critical role in driving short-term and midterm price action for many cryptocurrencies. As such, taking the trading volume and sentiment of futures traders into consideration offers deeper insights into the state of the market.
That said, one key metric used in analyzing futures market sentiment is the open interest (OI), which juxtaposes the number of open short positions against the number of open long positions daily. As you might know, an increase in the OI metric typically triggers a rise in volatility, while a decrease causes price action to be more stable.
Before the FTX crisis, Ethereum’s OI maintained an upward climb as many traders believed the bottom was in and placed aggressively bullish bets. At the same time, some traders placed bearish bets as a hedge on their portfolios.
That said, FTX’s crash only made matters worse on the open interest front, sparking volatility and flipping traders’ sentiment further into bearish territory. At the time of writing, the open interest, as seen on CryptoQuant, has crossed over the price of Ethereum, which only makes matters worse for the cryptocurrency and solidifies the possibility of a return below $1,000.
Source: CryptoQuant
The Major Pivot for Ethereum Is $1,000: Mike McGlone
Senior macro strategist at Bloomberg Intelligence, Mike McGlone, agrees with the importance of the $1,000 mark.
According to McGlone, the world’s number-two cryptocurrency could fall to a two-year low of $500 if it fails to hold above the $1,000 mark. He argues that the $1,000 level is a turning point for ETH considering it represents “more of the financial-markets revolution that’s happening in cryptos akin to the advent of futures and exchange-traded funds.”
Source: Twitter
The Technical Analysis Angle
Since mid-August, when ETH peaked at $2,031, the cryptocurrency has maintained a steady decline along a wide bearish channel.
Interestingly, the recent FTX-induced crash coincided with the swing high to the top of the channel in early November, sending Ether to the $1,100 support. That said, the cryptocurrency immediately recorded a rebound to the $1,400 to $1,260 range but failed to hold itself inside the critical consolidation zone and soon found itself at the $1,100 support again on November 21.
Source: TradingView | ETH/USD Daily Chart
The cryptocurrency has since recovered mildly from this drop and approaches the consolidated zone again. With the persistent bearish cloud hovering over the market, especially as the FTX saga keeps getting worse, analysts expect to see another rejection from the consolidation zone and a rapid decline to the $1,000 mark.
Echoing McGlone’s sentiments, failure to hold this support when the time comes, which seems very likely at this point, will open the doors to further declines to the 2022 low of $880 over the coming months.
Final Word
The near- to medium-term picture looks grim for Ethereum as a bearish breakout below the psychological support of $1,000 lurks around the corner. At this point, it’s only a question of when.
Ethereum’s near-term price outlook seems to be in worse condition considering there’s an FTX hacker on the loose, dumping huge chunks of stolen Ether on the market. In fact, this hacker’s actions were responsible for the most recent ETH decline (November 21). The unknown hacker is said to currently be the 36th largest Ethereum holder in the market, with an ETH stash worth about $235 million.
As always, we advise investors to take extra precautions when trading the markets at this time.
