ETH has risen more than 40% so far this year to around $1,750, a seven-month high. However, despite the deployment of some bullish signals, such as the Shanghai upgrade, prices are not out of danger.
ETH Price Bull Trap?
ETH’s rally is in line with similar uptrends for other tokens in the crypto market. This is in response to lower inflation, reducing the likelihood that the Fed will keep raising rates.
Meanwhile, warnings of an impending bull trap have emerged in the market, which could erase recent gains. ETH faces similar risks due to the long-term correlation between stocks and Bitcoin.
source: cameron force
Let’s take a closer look at some potential upside and downside catalysts for ETH price.
ETH Becomes Most Deflationary Since The merge
The ETH issuance rate has fallen to its lowest level since September 2022, when the network transitioned to PoS via “The Merge.”
Since the merger, the annual supply of ETH has decreased by 0.056%. In other words, the Ethereum network has minted fewer tokens than has been removed from supply over the past 5 months.
supply Ethereum from merge | Source: ultrasound money
Investors generally view cryptocurrencies with a fixed supply or deflationary issuance rate as bullish in the long run.
source: Jesse Dow
The supply of ETH is currently around 120.5 million, but there is technically no maximum supply. However, the August 2021 London hard fork introduced a fee burning mechanism, adding deflationary features to ETH’s token economy.
Therefore, the higher the transaction fees on the Ethereum network at any given time, the more ETH is “burned” or permanently removed from the supply.
Interestingly, Ethereum’s average gas price rallied to a seven-month high of 27.13 gwei (the smallest unit of ETH) in the week ended Feb. 17.
Ethereum 7-day average transaction Gas price | Source: Glassnode
hShanghai Fork
Demand for ETH must not decrease relative to a deflationary supply rate that increases in price. A potential upside catalyst is an upcoming network upgrade called Shanghai, which is scheduled to roll out in mid-March.
The Shanghai hard fork allows users who locked ETH into Ethereum’s PoS smart contract to withdraw their assets. According to independent market analyst Kennan Mell, increased liquidity could incentivize more people to hold and invest in ETH.
In his article on SeekingAlpha, Mell argues:
“Being able to successfully implement a staking withdrawal will boost the price of ETH as new investors decide to buy shortly after, because they are waiting to buy until the network successfully implements a risky hard fork to do the job. High return on liquidity investment.”
Meanwhile, the total value locked in Ethereum PoS contracts continues to climb to new all-time highs, with the latest data showing deposits approaching 16.63 million ETH.
total value Enter Ethereum 2.0 | Source: Glassnode
Cryptocurrency staking crackdown
However, any bullish catalyst for ETH could fail due to a short-term regulatory crackdown and unfavorable technical factors.
In February, the U.S. Securities and Exchange Commission (SEC) fined the Kraken exchange $30 million for failing to register a staking program as a service, which included ETH staking.
Coinbase CEO Brian Armstrong also warned that the SEC could completely ban cryptocurrency staking services for retail investors. If true, such a ban could affect demand for ETH among U.S. investors.
ETH price hits bearish inflection point price
From a technical standpoint, ETH price is testing an important confluence of resistance, with a pullback expected to follow.
The confluence includes resistance at the multi-month downtrend line and the 50-week exponential moving average (50-week EMA, red waves), as shown in the chart below.
Weekly ETH Price Chart | Source: TradingView
A pullback from the confluence could push ETH price to test the 200-week moving average (green wave) around $1,550 as a short-term downside target.
Additionally, a further correction could bring the price closer to the black ascending trendline support of $1,200 in March 2023, representing a roughly 30% decline from current levels.
However, a clear break above the resistance of the downtrend line could trigger a bullish reversal setup in the $2,000-$2,500 region.
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Mingying
As reported by Cointelegraph
