– Ethereum price is showing signs of recovery but confirmation is far from here.
– On-chain metrics show investors are scooping up ETH at a discount despite the looming threat of another leg down.
– A weekly candlestick close below the $1,000 psychological level could trigger the second leg down.
Ethereum price has shown resilience in the last 24 hours, indicating that buyers are coming in. After the massive crash, ETH could try to recover some of its losses, but another leg down seems to be on the cards if significant levels are breached.
The Merge update
Ethereum has been planning to move from its current Proof-of-Work (PoW) model to a Proof-of-Stake(PoS) for years via the Merge upgrade. Implementing this update on the ETH testnet on June 8 has brought the developers one step closer to doing the same on the Beacon chain aka mainnet.
One hurdle that has popped up, however, is the difficulty bomb that was planted in the ETH blockchain in 2015.
A Difficulty bomb is a way developers prevent validators or miners from sticking to the PoW model during or after the Merge. This prevents any possibility of forks of the Ethereum main chain.
While the beacon chain is being propped up for the Merge upgrade, the difficulty bomb seems to have popped up. As a result, developers have decided to delay the bomb. As an extension of this development, the developers further released a new version of Geth v1.10.19. The aforementioned mandatory upgrade will delay the difficulty bomb by 700,000 blocks.
Regardless of the bullish fundamentals, Ethereum price has suffered a massive collapse in the last quarter.
Ethereum price ready for trend reversal?
Ethereum price has crashed 65% over the last six weeks and hit a new yearly low at $1,013. As a result of this catastrophic nosedive, ETH has flipped significant support levels at $2,324, $1,730, and $1,270 into a resistance barrier.
As of June 12, Ethereum price shattered the $1,270 hurdle but the recent 15% recovery suggests that buyers are scooping up ETH at discounted prices. A quick flip of the $1,270 hurdle into a support level could be the key that triggers an impressive bounce to $1,730.
The trend change here seems appropriate after a brutal sell-off; it will allow sellers to take a break, while sidelined buyers and institutional investors step in and accumulate, leading to a quick rally.
Supporting this thesis for Ethereum price is the uptick in the 7-day moving average of network growth from 63,000 to 73,000 over the last eight days. This 15% spike indicates user adoption and regaining investor confidence in ETH.
Further adding a tailwind to the recovery outlook is the accumulation of whales holding between 100 to 10,000 ETH. The number of such investors rose from 44,100 to 44,500 in the last eight days.
As seen in the price action these holders are scooping up ETH at discounted prices and are betting on the recovery rally.
While things are seemingly harmless in considering a recovery rally, the thesis is based on the assumption that ETH price manages to flip the $1,270 hurdle into a foothold. If buyers fail to gather together or if selling pressure continues to mount, this development could be unlikely. In such a case, the downtrend continuation seems more plausible.
Opposing the run-up for Ethereum price is the recent inflation in the supply of ETH present on exchanges, which has shot up from 15.87 million on June 11 to 16.36 million as of June 16.
This index shows that roughly 500,000 ETH were sent to centralized platforms that could potentially serve as sell-side pressure in case of a flash crash.
Considering these on-chain metrics and market conditions, the chance that Ethereum price continues its bearish trend is also present. If ETH sellers continue their offloading and breach the $1,000 psychological level it will invalidate the recovery thesis and catalyze the second leg down.
This bearish development could crash Ethereum price lower to fill the price inefficiency that extends to $661.
Source: Akash Girimath – FXStreet