Despite making gains of around 35% in 2023, Ethereum’s native token, Ether (ETH), has faced significant challenges in breaking above the $2,000 mark. This psychological resistance level has acted as a barrier multiple times, resulting in strong bearish rejections. The situation bears a resemblance to the bearish rejection near $425 in 2018-2019, where Ether was unable to overcome the obstacle posed by the 0.236 Fibonacci retracement graph line. In 2023, this same line lies near $2,000, hampering ETH’s progress and adding selling pressure.
One of the main factors contributing to Ethereum’s struggle to reclaim $2,000 is the strengthening U.S. dollar. In recent months, the demand for Ethereum has been dampened due to the prevailing negative correlation between major cryptocurrencies and the dollar. Ethereum’s weekly correlation coefficient with the U.S. dollar index (DXY) has consistently shown a negative trend in 2023. This unfavorable correlation has limited its ability to break above the psychological resistance level.
Furthermore, Ethereum has been underperforming in comparison to Bitcoin in 2023, largely due to the hype surrounding the spot Bitcoin ETF. The widely-tracked ETH/BTC pair has experienced a decline of 20% year-to-date (YTD). CoinShares’ weekly report reveals a drop of $114 million in net capital held by Ethereum-tied investment funds, while Bitcoin-based funds have attracted $168 million in the same period. This discrepancy highlights the preference for Bitcoin over Ethereum among investors.
The total-value-locked (TVL) across the Ethereum ecosystem has shrunk from 18.41 million ETH to 12.79 million ETH in 2023. This reduction in funds availability has resulted in lower yields for investors, as warned by JP Morgan analysts. Additionally, Ethereum’s gas fees have also declined, reaching a yearly low on October 5. The drop in TVL has been accompanied by a decrease in Ethereum’s NFT volumes and unique active wallets, with both metrics experiencing declines of 30% and 16.5% respectively in the last 30 days, according to Dapp Radar. Notable apps such as Uniswap V2, 1inch Network, and Lido have also seen a decline in key metrics.
Examining Ethereum’s price technicals, there is the potential for a rebound towards the 50-day exponential moving average (50-day EMA) near $1,665. However, the broader picture reveals a bearish continuation pattern known as an ascending triangle. A break below the lower trendline of this triangle could result in a significant price crash, with the drop potentially reaching the maximum height of the pattern. This scenario would lead ETH’s price to decline to $1,465 and $1,560 in October 2023, depending on the breakdown point. On the other hand, a break above the 50-day EMA could see ETH’s price rise towards the upper trendline of the triangle near $1,730 in October 2023, coinciding with the 200-day EMA.
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