Cryptocurrency Ethereum in blurred virtual network.
Ethereum price declined for three straight days as the cryptocurrencies meltdown accelerated. The ETH token is trading at $3,415, which was about 15% below this week’s high. Its total market capitalisation has dropped to more than $401 billion.
Ethereum has managed to emerge from the recent crypto sell-off better than most cryptocurrencies. Indeed, it has outperformed Bitcoin by a wider margin.
There are several reasons why Ethereum price is nosediving. As I wrote before, the main reason is that Bitcoin has also crashed in the past 24 hours. ETH and BTC have a relatively close correlation. The BTC decline is mostly because investors are taking profit after its strong rally and after El Salvador bought BTC worth more than $20 million.
Second, ETH is falling after its price tested the key resistance level at $4,000. In most cases, cryptocurrencies and other assets tend to retreat after hitting a key resistance level. A good example of this is what happened last week when the Bitcoin price jumped to the psychological level of $50,000. At the time, the coin declined to about $46,000. In Ethereum’s case, the coin tested the key psychological level of $46,000.
Another reason why ETH has collapsed is that the performance of Decentralized Finance (DEFI) platforms has lagged, with the total value locked in the network falling to about $90 billion. This means that the network has lost about $9 billion of value in the past few days.
At the same time, there are rising calls to increase regulations in the industry. For example, in a statement, Elizabeth Warren, a senator, asked regulators to come up with stringent regulations tailored for the industry, which is now a major shadow banking participant.
The daily chart shows that the ETH price has dropped by more than 15% from its highest point this week. To some bullish traders, this means that ETH is being offered at a 15% discount or even a 22% discount when you consider its all-time high.
At the same time, the coin is being stuck at the 25-day moving average. Notably, this price action seems like the formation of the handle section of the cup and handle pattern.
Therefore, while it is too early to buy the dip, I suspect that the coin will resume its bullish trend in the near term. If this happens, this trend will be confirmed if the price moves above this week’s high of $4,024 and the all-time high of $4,400. Indeed, I suspect that Ether will end the month above $5,000 level.