ETH’s Wild Ride

Last week, Ethereum’s price increased from roughly $100 to a high of $156. Shortly after, ETH corrected and is currently trading around $123. It is very interesting to see cryptocurrencies rally while the US Stock Market experienced its worst week since the 2008 financial crisis. Yesterday, the DOW rallied 1,000 points and cryptocurrencies have stayed flat. But what led Ethereum to such a rapid price increase in the midst of a merciless bear market?

To put it simply, the recent price increase in Ethereum was likely attributed to an oversold market filled with too many shorts. Once the market experienced a reaction rally, the majority of short sellers were forced to buy back the Ethereum leading to a rapid price increase. Once the shorts covered their positions the price of Ethereum immediately saw a large sell off. Now ETH is trading in a volatile range and will likely make a large move in one direction very soon.

Even though sentiment has been over-bearish as of late, it may be too early to call a market bottom. The recent reaction rally excited many, but the overall market trend remains bearish. Since Bitcoin failed to break resistance at $4.2k, it is starting to appear as if the recent run up in price was nothing more than a failed reaction rally in the middle of a long bear market. The most important question to ask when attempting to call a market bottom is, “who are the remaining sellers in the market?”

It is important to note that Ethereum is planning a hard fork which will likely occur on January 16th, 2019. This hard fork is known as Constantinople and it will fundamentally change the Ethereum blockchain. Also, this is not a contentious hard fork with community disagreement.

There are five Ethereum improvement proposals which will be included in the hard fork. The proposal which will likely have the most effect on price is the reduction of block rewards from 3 to 2. In the long run, this action will decrease the circulating supply of Ethereum. Ideally, if demand remains constant, a reduction in supply will increase price over a long period of time. Some are comparing Ethereum’s block reward reduction to Bitcoin’s block halvings, which have historically had a positive effect on price. The Constantinople hard fork was announced on August 31st, 2018 therefore Ethereum’s block reward decrease should already be priced into the market. Nevertheless, mainstream media has not talked about the block reward reduction which means there may be a run up in price based on speculation surrounding Constantinople. This update could potentially create a ‘buy the rumor, sell the news’ scenario similar to how Bitcoin’s price increased prior to the SEC decision on the Van Eck Bitcoin ETF. If the overall market drops heavily, this will negate the possibility of a rally before the update. There are no guarantees price will increase due to the hard fork, but it should still be on the radar of both traders and technologists.

After Bitcoin experienced a failed rally last week, the trend is looking short-term bearish. Descending volume is an indication that the bulls are losing steam and a downward move is likely to occur shortly. Ever since Bitcoin fell from $4.2k, it has been trading in a tight range from $3.7k – $3.8k. At this point, it appears as if a textbook bear flag pattern is forming. This confluence within the charts outlines a potential downward move to test support at $3.6k and then $3.2K.

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make objective decisions. This article is intended to educate readers on the recent state of the cryptocurrency market. The author of the article trades cryptocurrency.