Ethereum price rally hit crucial resistance as institutional investors are in ‘wait and see’ mode

Ether (ETH) has not reached a bullish breakout based on technical and on-chain analysis, suggesting that consolidation below the $2,000 price level may continue in the medium term. At the same time, the lack of sellers and strong fundamentals are likely to protect Ethereum from a sharp fall.

Ethereum Meets Resistance at Long-term Bullish Reversal Points

The price of ETH/USD is up 42.80% since the beginning of 2023 thanks to a short squeeze in the altcoin market, negative investor sentiment and low liquidity. Based on the chain and technical levels, the rally stopped at a decisive bullish-bearish reversal.

Glassnode’s relative unrealized loss metric measures the scale of losses on the books of Ethereum holders. The orange line represents a bullish-bearish pivot line, where consolidation above this level means a bearish trend and vice versa. Typically, the market enters a bull trend after breaking previous all-time highs or consolidating for extended periods of time, as evidenced by a sharp decline in the unrealized loss rate.

Ethereum unrealized loss metric. Source: glass knot

Similarly, from a technical standpoint, Ethereum bulls failed to overcome the resistance at 0.082 BTC, pushing the price back into a parallel trading range between 0.053 BTC and 0.082 BTC.

Weekly ETH/BTC price chart. Source: Trading View

Will the time be different?

Based on historical levels, Ethereum has missed previous low levels by a huge margin, with the minimum supply percentage in profits increasing to 42.1% compared to 20-30% gained during previous bear markets. This speaks to the likelihood that more problems await ETH holders. However, on-chain trends show active activity and buying, which significantly reduces the risk of downside.

Ethereum percentage offer in profit. Source: glass knot

The change in the net position of ether on exchanges shows a sharp difference between the current and previous bear markets. Between 2018 and 2020, the inflow of Ether to exchanges was significantly higher than the outflow, indicating that many holders were moving their coins to exchanges to sell. However, in the negative period of 2022, although the price fell, the outflow of the currency remained strong, suggesting that there is less selling pressure in the current bear market.

Change in the net exchange position of ETH. Source: glass knot

The percentage supply of ether locked in smart contracts tells a similar story, with no significant decline in the amount of ether locked in smart contracts. The uptrend that started at the end of 2020 has been maintained during the 2022 downturns, suggesting a withdrawal is unlikely anytime soon.

ETH interest supply locked in smart contracts. Source: glass knot

There is a lot going on in Ethereum as the network continues to evolve to support sustainable use and yield for Ethereum holders. Ethereum’s transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) in September 2022 was a major milestone for the network as it became green and, more importantly, lowered inflation.

Moreover, the EIP-1559 proposal, implemented earlier in 2022, resulted in the burning of Ethereum fees, which, combined with the reduction in issuance after the merger, contributed to the deflation of the asset. The total amount of ether has decreased by approximately 0.015% since the merger.

However, CoinShares data on the institutional flow into digital asset investment products shows that more sophisticated investors are not yet accustomed to Ethereum, sticking mostly to Bitcoin. Year-to-date, Ethereum investment in 2023 was only $8 million compared to $158 million in bitcoin and $23 million in bitcoin shorts.

Institutional flows into investment products of digital assets. Source: CoinShares

The regulatory clarity and scalability issues of Ethereum are likely the key reasons behind the reluctance of institutional investors. Kraken was recently fined $30 million by the U.S. Securities and Exchange Commission for offering ETH rates, which the regulator deemed a security.

Since centralized service providers such as Kraken and possibly Coinbase, forbidden to offer these services, organizations may not want to try decentralized liquid staking platforms like Lido and Rocket Pool.

Ethereum’s high gas fees remain a long-term problem that limits mainstream adoption. The average fee for transferring ERC-20 assets to Ethereum ranges from $2 to $5, while simple swaps cost between $5 and $20.

These fees are significantly higher compared to other networks and centralized exchange fees. While development has taken place in the Tier 2 space, institutions seem to be in a “wait and see” mode as they analyze the development of the crypto space.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.

This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.

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