Ether prices declined today after the Ethereum network’s long-awaited transition to proof-of-stake finally took place.
The world’s second-most valuable digital currency by total market capitalization fell below $1,450 close to 8 p.m. EST, TradingView figures show.
At this point, the cryptocurrency was down more than 12% from the intraday high of $1,655.00 it reached earlier, additional TradingView data reveals.
After reaching its intraday low, the digital currency recovered slightly, trading close top $1,470 at the time of this writing.[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
A Crucial Milestone
The network’s so-called merge, which involved it switching to a new consensus mechanism, was an event that generated a great deal of visibility in recent weeks, with cryptocurrency fund manager Jacob Eliosoff describing this milestone as “probably the biggest change to a blockchain since Bitcoin launched in 2009.”
The switch is expected to drastically reduce the network’s power consumption, lowering it by over 99.9%.
Developers involved with Ethereum have stated that the change will enhance the network’s security and clear the way for improvements in scalability.
The so-called merge is the first of five key phases that the network is expected to undergo in the near future.
The next phase, described as “the surge,” will make it possible for Ethereum to harness sharding, which would divide the network into smaller pieces in an effort to improve its bandwidth for processing transactions.
Buy The Rumor, Sell The News
Tim Enneking, managing director of Digital Capital Management, described the price movement that took place following the merge as an “absolute, textbook example of “buy on the rumor, sell on the news.’”
“In this case in particular, however, we do not expect the drop to last very long as more news on how the post-merge PoS change is actually working materializes,” he added.
“Seems to be a real tour de force so far, and, assuming proves that to be correct, we see a bull market in ETH in the offing.”
Key Technical Levels
Enneking next provided some technical analysis, emphasizing that there are several price levels where investors might place significant amounts of buy and/or sell orders.
“As far as TA, for ETH really every round number in hundreds is big, with 2k being a massive resistance level (felt lower as traders front run it),” he stated.
Jake Wujastyk, VP, strategic growth at TrendSpider, offered a more specific take on the matter.
“Ethereum recently broke down through its symmetrical triangle support zone today with previous lows from July and August in play from $1,420-$1,440. If this level breaks, a retest of the previous lows could be in store,” he predicted.
Armando Aguilar, an independent cryptocurrency analyst, pointed out similar levels.
“Looking at the last low point (June 2022), Ethereum faced another ~12% drop to mid $800s. The next downside resistance level stands in the low $1,400s and if levels are breached, we could see a downtrend until the $1,200s area,” he said.
“Given the optimism post merger and market longs, investors expect Ethereum to breach upper level resistance above $1570 area to reclaim the mid $1600s price,” Aguilar added.
Relative Strength Index
The market observer also mentioned the Relative Strength Index, a tool that technical analysts can use to measure the extent to which an asset is either oversold or undersold.
The RSI has values between zero and 100, and when it falls below 30, that usually means the asset in question is oversold, whereas a reading above 70 generally signals an overbought situation.
“Investors should also keep an eye on the RSI which closed at 31.9,” said Aguilar.
“The last time the RSI closed in this range was mid August and Ethereum recovered in price substantially.”
Aguilar also highlighted several important variables that could affect ether, as well as the rest of the cryptocurrency markets, going forward.
He specifically mentioned the upcoming Federal Reserve policy meeting, scheduled to take place on September 20 and 21, where the Federal Open Market Committee is expected to announce another substantial increase in the central bank’s benchmark rate.
Current data from the CME FedWatch Tool indicates that markets largely expect the financial institution to hike the rate by 75 basis points.
“Next week the Fed’s meeting will put on additional pressure on traditional and crypto markets,” Aguilar predicted.
“All investors’ eyes will be on the Fed’s meeting and the next rate hike,” he stated.
“Additionally, the US dollar index remains strong and has continued to put pressure on FX and purchasing purchasing power abroad,” Aguilar noted.
Recently, the U.S. Dollar Index (DXY), which measures the value of the greenback relative to other major fiat currencies, has been fluctuating close to its highest level in over 20 years.
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.