Source: PaxForex Premium Analytics Portal, Fundamental Insight
Volatility has always accompanied the cryptocurrency sector and has shown its existence this morning. Bitcoin spiked above 20,000, and other cryptocurrencies have followed its lead. While social media outlets call for the start of a new super-bull run, a sharp gain following 60%+ losses in 2022 is nothing extraordinary. Short interest has approached extreme levels, and short-sellers booked profits after several days of gradual increases in price action. Once the ETH/USD breached a certain level, price action accelerated to the upside, but buying pressure faded quickly afterward. Price gaps often close, and traders should expect a measured move lower to near the 1535 level.
The cryptocurrency sector continues to reel from the FTX collapse, and many industry experts believe that the fallout is incomplete. Another reason for concern is the surge in popularity of liquid staking derivatives or LSD, a fitting acronym, as they have driven sharp rallies in the likes of Lido Finance and Rocket Pool, where Lido Finance commands 88%+ of the LSD market. Ethereum remains on track for its Shanghai hard fork in March, and it will allow Ethereum stakers to finally withdraw their lock-up capital. Given the current stage of the cryptocurrency sector, global economy, and central bank action, it could spark an exodus of capital from Ethereum as prices slumped since many stakers chased fixed returns for locking up their Ethereum tokens.
LSD allows individuals to stake any amount of Ethereum they can afford, and projects issue another token in return. For example, market leader Lido Finance has its stETH token, which stakers can use elsewhere if accepted. Should current trends remain, Lido Finance can overtake MakerDAO, often labeled the unofficial central bank of the cryptocurrency sector. It will connect Ethereum to yet another derivative contract, interconnects companies, and resembles the type of opportunity that caused high-profile cryptocurrency projects and companies to collapse in 2022. The difference between LSD and its pending connection to Ethereum is that the contagion effect could increase once the sector comes down from its LSD high while FTX continues to hound it.
The forecast for the ETH/USD turned bearish after this cryptocurrency pair spiked into its horizontal resistance area, which includes a price gap to the upside this morning. The sharp acceleration increased volatility, and short-term bullish momentum exists, as confirmed by the ascending Kijun-sen and Tenkan-sen. Both are expected to temporarily move above the flat Ichimoku Kinko Hyo Cloud before a reversal could end the short-term bull run. Traders should also monitor the CCI in extreme overbought territory, where signs of a negative divergence have formed. A breakdown below 100 followed by a collapse below zero would end this bear market rally in Ethereum. Can bears withstand bullish attacks and regain control of price action to force the ETH/USD into its horizontal support area? Subscribe to the PaxForex Daily Fundamental Analysis and earn over 5,000 pips per month.
Should price action for the ETH/USD remain inside the or breakdown below the 1,540 to 1,610 zone, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Short Position
- Entry Level: Short Position @ 1,580
- Take Profit Zone: 1.305 – 1,370
- Stop Loss Level: 1,675
Should price action for the ETH/USD breakout above 1,610, PaxForex recommends the following trade set-up:
- Timeframe: D1
- Recommendation: Long Position
- Entry Level: Long Position @ 1,675
- Take Profit Zone: 1,725 – 1,785
- Stop Loss Level: 1,610
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