Why Ethereum Price at $600 Seems More Plausible Than $3,000
- Ethereum price turned bearish from a macro perspective after creating a second low at $1,700.
- Investors should be prepared for the worst-case scenario that puts ETH at $600.
- A three-day candlestick close above $3,396 will invalidate the bearish thesis.
Ethereum price is in a tough spot despite the recent crash and indicates that a further downtrend is to be expected. The case of an uptrend will only be revived after ETH has produced a higher high from a macro perspective. From a fundamental point of view, growing competition has recently capped the rise of the Ethereum blockchainbut user dominance and other cycle improvements allow for a strong upside.
Opinions divided on Ethereum on the “State of Crypto” report
In this regard, in a recent report on “State of Crypto in 2022”, popular tech venture capital firm a16z outlined its views on Ethereum and its leadership. The Sillicon Valley company report states that “users are willing to pay an average of $15 million in gas fees per day despite the massive number of competing blockchains.” Also, this a16z report mentioned how this popularity is a “double-edged sword” because the Ethereum blockchain has always preferred decentralization to “security”, allowing other Layer 2 scaling solutions to siphon off its share of users with the lure of “better performance and lower fees”.
Read also: Can Ethereum price hold as Vitalik Buterin sells 30,000 ETH?
According to a16z, “other blockchain developers like Solana, Polygon, BNB Chain, Avalance, and Fantom are aiming for similar success.”
Ethereum has the largest number of builders by far, with nearly 4,000 active developers per month. Next is Solana with nearly 1,000 and Bitcoin at around 500.
Ethereum’s overwhelming notoriety helps explain why users have been willing to pay over $15 million in gas fees per day on average. pic.twitter.com/pBGywymKtz
— a16z (@a16z) May 17, 2022
Ethereum price remains bearish for a longer period
The price of Ethereum reached an all-time high at $4,868 on November 10, 2021 after gaining 579% year-to-date. This impressive rally faced two selloffs: the first crash took ETH down 55% and hit a low of $2,160. The rematch took the smart contract token down 52% and set a low of $1,700. This move from the all-time high is a clear indication of a downtrend with distinctive lower highs and lows. Since this trend occurs over a macro time frame, it indicates that ETH and Major Crypto Markets Are in a Bear Market.
For now, Ethereum price is bouncing off the $1,730 support floor, which also happens to be the high volume node of the 2021 volume profile. setting a higher high could yet trigger another crash that could break the $1,730 barrier. In this case, ETH price may slide towards the next stable barrier – $1,260, coinciding with the second high volume node of 2021. This is the second most important level that could serve as a potential reversal zone with the ability to trigger an uptrend.
Although recovery from this level is possible, anything below this level is extremely critical and the best area for dollar cost averaging or buying ETH spot. Assuming the sellers break the $1,260 barrier, the 2020 and 2021 volume profile shows that there is a massive gap stretching from $911 to $595 – called “The Void”.Also in this area is the fair value gap, i.e. price inefficiency, which extends up to $661. Therefore, the confluence of these levels around $661 is where long-term investors might blindly accumulate ETH. Indeed, the risk of selling around the mentioned levels is extremely low.
ETH/USD 1-day chart
Supporting this drop in the Ethereum price is the unrealized net profit/loss indicator. This index is basically the difference between ETH holders with relative unrealized profit and relative unrealized loss. Another way to understand this metric is that it is the difference between realized market cap and actual market cap. The relative unrealized profit or loss is obtained by noting the difference between the unrealized spent trade output (UTXO) and the value of the holdings at the current price level.
As seen in the graph, the bottom of each cycle occurred when the NUPL dipped into negative territory. The bear markets of 2018 and 2019 bottomed out when the NUPL was between 0 and -1. Currently, the The NUPL price for Ethereum is hovering around 0.19, indicating that further decline in price action is likely.
Finally, the Z-score of market value to realized value (MVRV) because Ethereum also supports the idea of a more pronounced correction. This on-chain metric is used to assess when Ethereum is over/undervalued relative to its “fair value”. Based on historical data, the green band, extending from 0 to -0.61, this is where ETH hit its lowest level in 2016 and where the altcoin is heavily undervalued or discounted. Similarly, the red band, extending from 7 to 8.5, is where all-time highs are formed and this is when ETH is very expensive or at a high price. Therefore, a dip in the green box would be a buy signal and a dip in the red box would present a sell signal.
For Ethereum, the Z MVRV score hovers at 0.19, indicating that the price of the second-largest cryptocurrency should dive deeper to signal “buy”. Interestingly, both on-chain metrics are perfectly in line with the technical outlook, suggesting that there is still a more pronounced correction ahead for the smart contract token.
Z-score ETH MVRV
Despite the extremely bearish outlook for Ethereum price, this makes sense from a macro perspective. Moreover, the price of Bitcoin also reveals its pessimistic narrative which aligns perfectly with the future of ETH. If Ethereum price produces a 3-day candle above $3,396, it will indicate a higher high from a macro perspective.. This move would invalidate the bearish thesis and suggest the possibility of an uptrend to retest the $4,000 or higher levels.
You can learn more about this technical outlook for Ethereum price in the following clip: