The price of Ether (ETH) has dropped by nearly 20% over the past three weeks, reaching below $3,000 on April 19. There was a brief recovery, but technical aspects suggest that further devaluations may be on the way.
Among such factors, one known as the “bear flag” is a classic bearish pattern. If confirmed, the price of ETH could drop another 33% and return to the level of US$ 2,000.
Bearish flag activated
The bear flag is a bearish continuation signal that appears when price consolidates new highs within a rising parallel channel. This consolidation usually occurs after a strong downward move (called a mast).
However, what appears to be a recovery turns out to be a trap. After reaching the top of the channel, the asset price drops again, usually stronger than the previous move.
This is exactly what happened to the ETH price, which tested the upper channel line on April 4th. But there was a rejection and now the price starts to fall, as shown in the chart below. Now eyes are on the lower channel line – the region around $2,700.
If the pattern enters as intended and breaks out of this line, the price could drop further, with its target length equal to the height of the mast. As a result, the setup carries a risk of ETH testing support in the $2,000 region. This can occur even in the second trimester.
The common pattern of its network is not the only risk faced by ETH. The cryptocurrency has also increased its correlation with BTC and other risky assets. That is, if these markets move, ETH is moving in a similar direction.
For example, the correlation coefficient between ETH and the NASDAQ 100 reached 0.95 on April 19, a very high level. A coefficient of 1 means that the two assets move in the same direction. It turns out that the Nasdaq 100 index has lost 8.06% in the last three weeks.
In contrast, the price of ETH has dropped by almost 20% over the same period. BTC and others followed suit, which reinforces the signs of high correlation. The causes are the increase in interest rates in the United States and the prospect of the Federal Reserve (Fed) reducing its balance sheet.
A drop in the Fed’s balance sheet means less money entering the market, as well as a greater demand for safety. The ideal scenario for risky assets to undergo a major correction.
High in the long term
However, speculators remain hopeful with ETH in the long term, particularly because of The Merge update. Even if the launch is eventually delayed, there are several factors that bring optimism about the future move.
The problem is that many investors had hoped the upgrade would bring faster gains, but were frustrated by the recent delay. The resulting sales are pushing the ETH price down.
“ETH is still experiencing the pressure of pressure from people who wanted to make quick money with Merge. At some point in time, we’ll find the balance, but I’m not interested in predicting this bottom, I just want to accumulate as much as I can before we get there,” noted analyst Dooplecash.