Two major points that will determine Ethereum price: $2k or nothing.
While we were looking at top proof of stake coins, the ethereum price chart showed that the coin has not yet gotten an upward channel since the crypto-wide crash that happened on May 12. Ethereum dropped to $1790, and the resistance of $2,000 has not been breached. Although this is a disturbing stat, it is nothing compared to the increasing correlation between tech stocks and the general crypto market. If we would see a bull run in the coming weeks or months, this correlation must first reduce. To remove the existing skepticism in the space.
Ether/USD 4-hour price at Bitstamp. Source: TradingView
The major reason for the overall crypto slump cannot be pinpointed. Several issues come together to account for the crypto winter we currently experience. First, inflation is prevalent due to the massive government spending to cushion the effect of the coronavirus pandemic, and while it is not rocket science to know the ripple effect of exorbitant spending on the economy, most governments of the world responded a little too late.
For example, the US Federal Reserve, a body that is responsible for dictating market performance explained that inflation was transitory before coming to terms with a huge rate hike to curb the ever-present inflation. Cryptocurrencies, which have been seen in times past as an inflation hedge, also failed to meet up to their hype. A 0.85 correlation with the stock market also means there are little possibility crypto buyers will get into the market any time soon with the battering the stock market is receiving. Unless, of course, we see a reverse trend from the March 29 correlation.
To explain the correlation figure, the range moves from -1 to +1. The closer a market is to -1, the more uncorrelated a pair is. The closer it is to 1, the more correlated it is. And when a correlation is at 0, it shows the uncorrelated nature of both pairs.
At the May 17 Livestream from the federal reserve, its chairman, Jerome Powell reinstated his desire to reduce inflation no matter what it costs. According to him, we are seeing unhealthy levels of interest rates, and that means there could be some more tightening till it comes back to being healthy. Healthy figures tend to be around the 2% mark, and having increased rates to 50 B.P, it is clear to all that the feds will take it up if need be.
The situation looks like a give-and-take issue. Although there is much optimism from the financial markets about this decision, the upward movements do not remove the effect of unemployment rates likely to suffer greatly from tightening measures.
Regulatory uncertainty also had a negative impact
Another important occurrence in the crypto market that influenced Ethereum’s price not moving up is the Terra ecosystem crash. On May 16, the U.S. Congressional Research Service (CRS) released a document analyzing how the lack of regulatory oversight in the Terra Ecosystem allowed its crash. It further emphasized the point that the stablecoin industry is not regulated well. The aftermath of this meeting saw the total value locked on ethereum DeFi drop a whopping 12% or about $3.4 billion, from its previous weekly highs. Ethereum network total value locked ETH. Source: Defi Llama
Even though the doom of the Terra ecosystem meant that skepticism prevailed in the DeFI industry, a positive side to it is how Ethereum remained resilient during the apocalypse. Another thing to consider here is how whales and traditional market makers are positioning themselves for future price movements. A good place to see this is Ether’s futures market data.
Ether futures shows signs of distress
Futures rates on a quarterly basis are what arbitrage traders and whales always want to use because of their stability. These contracts are usually sold at a little premium to hat the spot market prices quoted. The relevance of this is that sellers usually request more payment to delay settlement periods. When the market is healthy, we should see the futures trading at a 5% – 12% premium, a term called Contango in the general capital market
Ether futures 3-month annualized premium. Source: Laevitas
The chart shown above shows a better description of the Ethereum futures contract premium. As seen above, it went below 5% on April 6 As displayed above, Ether’s futures contracts premium went below the market-normalcy level of 5% on April 6. Also, there is a shortage of leverage buyers and the figure for the futures is still under the 5% mark despite Ether selling at a discount.
This information are not seen on the ethereum 2.0 beacon chain, but thankfully, several crypto data analytics companies exist to give us up-to-date information.