- Ether’s price experienced a dip this week, with indicators predicting further downside, however, the decline may be curtailed due to the profit levels of existing holders and decrease in ETH’s liquid supply.
- On-chain analysis reveals Ethereum’s network value-to-transaction value (NVT) metric indicates possible overpricing, while derivatives data suggests traders’ indifference to the recent price activity.
As the crypto market weathers a storm of volatility, Ether (ETH) has been no exception. The cryptocurrency saw a decline this week, and there are signs that further downside may be forthcoming, however, several factors may restrict the depth of this downward trend.
Ether’s Price in the Balance
On July 24, Ether’s price dropped near its monthly low, hitting $1,825 in the wake of Bitcoin’s negative price action. An uncertain macroeconomic landscape and fears of a potential whale sell-off have contributed to the downturn. Several on-chain and technical indicators are hinting at further downside in ETH prices.
Since the start of 2023, Ethereum’s network value-to-transaction value (NVT) metric has been flashing signs that the asset might be overpriced. The NVT metric, as gauged by Glassnode, provides a relative value of the Ethereum network by comparing the market price to the volume of on-chain transactions. A higher NVT reading implies that ETH could be trading at a premium.
However, the profit levels of short- and long-term holders could limit the potential drop. Typically, Ether’s negative price action reverses when the net unrealized profit/loss (NUPL) metric of short-term holders is negative, signifying losses. This situation triggers panic selling among weaker investors, thereby providing an opportunity for buyers to purchase coins at a lower price.
Understanding the Current Scenario
Another significant factor in the equation is the decrease in ETH’s liquid supply. Since Ethereum’s Shapella upgrade in April, the ETH supply on exchanges has dropped drastically, while the amount staked for validation of the proof-of-stake network has increased. This decrease in liquid supply makes the currency less susceptible to selling.
On a technical front, the ETH/USD pair shows bearish risk in the short term with a looming ‘death cross’ on the weekly scale. A ‘death cross’ occurs when a short-term moving average crosses below a long-term moving average, often indicating the potential for a significant sell-off.
Derivatives data for ETH indicates no significant change in the open interest volume for futures contracts, suggesting that traders are currently showing little interest in the recent lackluster price action.
In light of these on-chain and market indicators, it appears that Ether may experience further negative selling pressure in the coming weeks. However, strong buying support, particularly at support levels of $1,700 and $1,500, could counterbalance this downward pressure.
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