Source: PaxForex Premium Analytics Portal, Fundamental Insight
Roughly one year since it successfully completed The Merge, Ethereum appears to be losing favor among cryptocurrency investors. Despite a strong start to the year, Ethereum has experienced a 10% decline in the past 30 days and a drop of more than 20% from its mid-April peak. Furthermore, some investors are cautioning that Ethereum may continue to slide before rebounding to reach the $2,000 price level.
For those considering the strategy of "buying the dip" on Ethereum, there are two key concerns that warrant close examination. Let's delve into these concerns in more detail.
First and foremost, there has been a significant decrease in transaction volume and overall activity occurring directly on the Ethereum blockchain. For instance, transaction volume recently hit a nine-month low, while daily transaction fees reached an eight-month low. The prevailing consensus suggests that user interest in the Ethereum blockchain has waned, potentially leading them to explore other options.
If this holds true, it could be cause for concern, as it may signify a sustained decline in areas such as non-fungible tokens (NFTs), where Ethereum has traditionally held a dominant position. Utilizing any valuation model would require revising down Ethereum's future prospects, resulting in a lower long-term price projection.
However, there could be a plausible explanation for the decline in transaction activity: Users may simply be opting to conduct their transactions on faster and more cost-effective Layer 2 blockchains that operate atop the core Layer 1 Ethereum blockchain. Consequently, conventional metrics might not accurately capture all Ethereum-related activity.
For instance, one of this summer's most talked-about blockchain projects was Base, the new venture from Coinbase Global. Interestingly, Base functions as a Layer 2 scaling solution for Ethereum. Additionally, several other Layer 2 blockchains are currently performing well, suggesting that the broader Ethereum ecosystem remains robust and healthy.
Another significant factor to take into account is the abrupt shift in investor sentiment towards Ethereum that began around mid-April. During that time, Ethereum was trading at approximately $2,140 and had posted substantial gains for the year. However, over the past four months, there has been a consistent trend of selling by what are known as Ethereum "whales" – individuals holding between 10 ETH and 10,000 ETH in their crypto wallets. In theory, these whales represent the informed investors in the crypto market. So, if they are selling, it raises questions about what they might know that the rest of us don't.
Even more concerning to some is the possibility that Ethereum co-founder Vitalik Buterin might be among those divesting their Ethereum holdings. After closely tracking the various public wallets associated with Buterin, crypto monitoring services have observed that he has transferred nearly $6 million worth of Ethereum to other crypto wallets over the past month. Some have interpreted this as a warning sign, akin to corporate insiders selling their shares when they anticipate a price decline.
However, I believe there is a plausible explanation for these developments. The mid-April sell-off coincided with the Shapella tech upgrade, which allowed investors to withdraw their staked Ethereum for the first time. During March and April, there were widespread concerns that this could result in selling pressure on Ethereum, as many early backers sought to secure profits from their positions. This likely explains the current situation.
As for Buterin, it's highly unlikely that he's panicking about Ethereum's price. Instead, a more reasonable explanation is that he is diversifying his assets across different crypto wallets as a precaution against potential threats from hackers and cybercriminals. Such practices are standard in the crypto industry.
In summary, I see this as a classic "buy the dip" opportunity for Ethereum. From my perspective, the crypto market appears to be overreacting to the downside, interpreting each piece of news as evidence that Ethereum has suddenly lost its appeal.
However, it's important to remember that Ethereum remains a top contender in virtually every sector, including NFTs and decentralized finance (DeFi). It continues to witness a robust surge in developer activity, and Buterin has already outlined a comprehensive long-term roadmap for Ethereum that includes numerous upgrades, enhancements, and performance optimizations. While Bitcoin may be capturing the spotlight among institutional investors with the upcoming launch of a spot Bitcoin exchange-traded fund, this doesn't mean they have overlooked Ethereum.
As a long-term investment strategy, Ethereum still holds significant potential. If you believe that the market is currently overreacting, seizing the opportunity to buy the dip may be a way to increase your Ethereum holdings at a more favorable price.
As long as the price is above 1540.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 1619.50
- Take Profit 1: 1805.00
- Take Profit 2: 1920.00
Alternative scenario:
If the 1540.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 1540.00
- Take Profit 1: 1460.00
- Take Profit 2: 1360.00
