Why is Ethereum (ETH) price down today?
Ether (ETH) has witnessed a sharp price decline, losing about 9% in just three days. As of Oct. 23, Ethereum's price fell further, registering a 3.5% drop to $2,492. This decline mirrors broader cryptocurrency market trends, where the total capitalization has decreased by around 0.8%, bringing the total market to $2.29 trillion.
Ethereum’s struggles stem from several factors, including a wave of liquidations, Bitcoin's growing dominance, and strong resistance at key price levels. Let's delve deeper into these dynamics to understand why Ethereum prices are falling.
Long Liquidations: A Key Factor Driving Ethereum Lower
One of the main forces behind Ethereum's recent price drop is the significant liquidation of leveraged positions. According to CoinGlass, over $24 million in Ether leverage positions were liquidated over the last 24 hours, with $23.2 million of these representing long positions. Across the broader crypto market, liquidations reached a staggering $122 million.
The liquidation process occurs when traders with leveraged positions fail to meet margin calls, forcing their positions to close. These closures result in a sell-off, which exacerbates price declines if there's not enough buyer demand to absorb the selling pressure. In Ethereum's case, these liquidations pushed the price lower, creating a negative feedback loop of declining prices and increasing liquidations.
Liquidations of long positions tend to have a more pronounced effect, as they typically represent traders expecting a price increase. When these traders are forced to sell, the market reacts negatively, further driving prices down. The sheer size of the liquidations in Ethereum suggests that many traders had over-leveraged their positions, betting on a quick price recovery, but the market moved against them.
As liquidations mounted, it became increasingly difficult for Ethereum to recover, adding to the bearish sentiment in the market. The liquidations also impacted other cryptocurrencies, contributing to a broader market decline. However, Ethereum was hit particularly hard due to its large share of the liquidated positions.
Bitcoin's Dominance Weighs on Ethereum
In 2024, Bitcoin (BTC) has outperformed Ethereum consistently, adding to Ether's woes. Since the U.S. Federal Reserve's interest rate cut of 50 basis points in September, Bitcoin has surged by 11%, whereas Ethereum has managed only a 6% gain in its US dollar pairing.
The divergence between the two cryptocurrencies has become more apparent in the ETH/BTC ratio. As of Oct. 23, this ratio had dropped to 0.03856, marking a 42-month low. The last time the ETH/BTC ratio was this low was in April 2021. Investors appear to favor Bitcoin over Ethereum due to BTC’s resilience and the increased institutional demand fueled by the approval of spot Bitcoin exchange-traded funds (ETFs) in the U.S.
Bitcoin ETFs have attracted significant capital inflows, boosting Bitcoin's market share at the expense of Ethereum and other altcoins. Ethereum ETFs, while approved, have not generated the same level of interest, contributing to ETH's underperformance. This lack of institutional demand for Ethereum is a key reason behind the cryptocurrency’s price struggles.
Investors see Bitcoin as a safer store of value and a hedge against inflation, while Ethereum, despite its use case in decentralized applications (DApps) and decentralized finance (DeFi), has not garnered the same level of trust. As a result, Bitcoin now accounts for over 51% of the total cryptocurrency market capitalization, further squeezing Ethereum’s market share.
Strong Resistance Levels for Ethereum Price
Technically, Ethereum faces a significant hurdle around the $2,800 price level. On Oct. 21, ETH briefly rose to $2,768 but was met with strong resistance, preventing it from breaking higher. This resistance is largely due to a congestion zone of suppliers between $2,545 and $2,621, where around 2 million ETH were bought by approximately 3.2 million addresses, according to data from IntoTheBlock.
This level of supplier congestion creates a barrier to any upward price movement for Ethereum. With so many investors holding ETH around this price range, any attempt to push higher is likely to be met with selling pressure as these holders look to break even or minimize losses.
CryptoQuant, a market intelligence firm, highlighted that Ethereum is at risk of a short squeeze due to increasing leverage in the futures market. The firm noted that the Estimated Leverage Ratio (ELR) for Ethereum has been rising, indicating that traders are taking on more leverage. As leverage increases, so does the risk of a short squeeze, which could force traders to cover their positions, further driving prices down.
CryptoQuant’s analysis pointed to the 100-day simple moving average (SMA) at $2,675 as a key resistance level. Breaking above this level would require significant buying momentum, but with the current bearish sentiment and resistance zones, such a recovery seems unlikely in the short term.
Moreover, data from IntoTheBlock corroborates CryptoQuant’s findings, showing that the $2,545 to $2,621 range is a critical resistance zone for Ethereum. This area represents a large volume of ETH held by numerous addresses, reinforcing the likelihood that Ethereum will struggle to push higher in the near future.
Market-Wide Factors Impacting Ethereum
Ethereum's recent struggles are also part of a broader market trend. The overall cryptocurrency market has faced headwinds from macroeconomic factors, such as inflation concerns and regulatory uncertainties. These issues have dampened investor sentiment, particularly towards riskier assets like cryptocurrencies.
Inflation continues to be a significant concern for investors, as central banks worldwide grapple with rising prices. While Bitcoin is often seen as a hedge against inflation due to its limited supply, Ethereum has not garnered the same perception. This has led to a shift in capital flows away from Ethereum and towards assets perceived as safer, like Bitcoin.
Regulatory challenges have also played a role in Ethereum's price decline. The U.S. Securities and Exchange Commission (SEC) has increased its scrutiny of the cryptocurrency market, particularly focusing on DeFi platforms and DApps. As the backbone of many DeFi applications, Ethereum could face additional regulatory hurdles, which may deter institutional investors and add to selling pressure.
The approval of Bitcoin ETFs in the U.S. also represents a double-edged sword for Ethereum. While it has boosted Bitcoin’s price, it has simultaneously reduced demand for Ethereum as investors flock to the new Bitcoin investment products. Without a similar level of interest in Ethereum ETFs, Ether could continue to struggle as Bitcoin captures more of the market's attention.
Ethereum’s position as the leading smart contract platform remains secure, but its price performance may continue to lag behind Bitcoin in the short term. Until institutional demand for Ether catches up with that of Bitcoin, and until the regulatory environment becomes clearer, Ethereum may face continued downward pressure.
Ethereum's recent price decline is the result of a combination of factors, including significant long liquidations, Bitcoin's increasing dominance, and strong resistance at key price levels. With macroeconomic challenges and regulatory uncertainties adding to the bearish sentiment, Ethereum's price could remain under pressure in the near term. However, with its strong position in the DeFi and DApp space, Ethereum remains a critical player in the broader cryptocurrency market.
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