Based on on-chain and technical analysis, ETH has failed to achieve a bullish breakout, suggesting that consolidation below $2,000 may continue in the medium term. Meanwhile, a lack of sellers and strong fundamentals will protect ETH from a sharp drop.
Ethereum Resistance met at long-term bullish reversal point
Ether is up 42.8% since the start of 2023, thanks to a short squeeze in the altcoin market, negative investor sentiment and low liquidity conditions. According to on-chain and technical indicators, the rally paused at an important point that determined the bearish trend to the upside.
Glassnode’s Relative Unrealized Loss Index measures the size of ETH holders’ paper losses. The orange line represents the bullish-bearish decision boundary, consolidation above this level implies a downtrend and vice versa. Typically, markets initiate an uptrend after breaking a previous all-time high or after a long period of consolidation, which is reflected in a sharp drop in unrealized losses.
loss figure Unrealized ETH | Source: Woodclass node
Also, from a technical standpoint, ETH bulls failed to break the resistance at 0.082 BTC, bringing the price back to a parallel trading range between 0.053 BTC and 0.082 BTC.
Weekly ETH/BTC price chart | Source: TradingView
Will this time be different?
Based on historical levels, ETH is far from previous lows. The minimum supply percentage for profitability expanded to 42.1% from 20-30% in the previous bear market. Therefore, ETH holders may face more difficulties in the future. However, the on-chain trend shows strong activity and a large number of buy orders, which greatly limits the downside risk.
supply percentage ETH is profitable | Source: Woodclass node
Changes in ETH’s net position on exchanges show a stark difference between the current and previous bear markets. From 2018 to 2020, ETH inflows into exchanges were significantly higher than outflows, suggesting that many holders have moved their coins to exchanges for sale. However, during the negative phase in 2022, outflows remained strong despite falling prices, suggesting weaker selling pressure in the current bear market.
Change ETH position Netcom Exchange| Source: Woodclass node
The percentage of ETH supply locked in smart contracts tells a similar story. ETH locked in smart contracts has no apparent downward trend. The upward trend that started in late 2020 has been maintained until the recession in 2022, which means that withdrawals will not happen anytime soon.
percentage supply ETH is locked in a smart contract | Source: Woodclass node
A lot is happening on Ethereum as the network continues to evolve toward sustainable usage and profitability for ETH holders. Ethereum’s transition from PoW to PoS in September 2022 is an important event for the network as it becomes greener and, more importantly, lowers inflation.
In addition, Ethereum Improvement Proposal 1559, implemented in 2022, introduced Ethereum burns, which combined with reduced issuance after the merger led to asset deflation. Since the merger, the total supply of ETH has decreased by about 0.015%.
However, CoinShares data on institutional inflows into digital asset investment products shows that professional investors are still not interested in ETH. Instead, they mostly stick with Bitcoin. Only $8 million has been invested in ETH so far in 2023, compared to $158 million in Bitcoin and $23 million in short Bitcoin.
cash flow Institutional funds flow into digital asset investment products | Source: CoinShares
Ethereum’s lack of regulatory clarity and scalability challenges are likely the main reasons why institutional investors are less excited. The SEC recently fined Kraken $30 million for offering ETH collateral, which the regulator considers a security.
With centralized service providers like Kraken and possibly Coinbase banned from offering these services, the group will consider experimenting with decentralized liquidity staking platforms such as Lido and Rocket Pool.
Exorbitant gas fees on Ethereum remain an ongoing challenge limiting mass adoption. The average transfer fee for an ERC-20 asset on Ethereum is between $2 and $5, with a simple swap around $5-20.
These fees are significantly higher than many other centralized chains and exchanges. While the layer 2 space is being developed, institutions appear to be in “wait and see” mode when analyzing developments in the crypto space.
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As reported by Cointelegraph