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Why is the Ethereum Price Dropping After The Merge?

Whilst the finalization of the Ethereum Merge was a great success the price action of Ethereum following the Merge led to disappointment amongst holders. Over the last 48 hours the price of Ethereum has dropped by 15.15% and is now trading at $1,422.

Many technical indicators suggest that we could see a bounce here for Ethereum but it will require a lot of force for the bulls to reclaim the $1,700 price levels.

Will Ethereum pump? Ethereum is available on Binance.

Cryptoassets are a highly volatile unregulated investment product.

From a technical analysis point of view Ethereum is still in a macro downtrend and is yet to break through an imperative resistance level of $1,711.

During the peak of the bear market Ethereum corrected to a low of $888 from its all-time high of $4,877, versus many other altcoins Ethereum had a rather miniscule correction size of 81.76%. Altcoins can typically correct fay beyond the 90% range.

Investors who managed to scoop up some more Ethereum in June following Bitcoin crossing the 200-week moving average would still be up by 59.18% if they were holding today.

The main reason that Ethereum has dumped recently is due to the ‘buy the rumor, sell the news’ effect. In the context of trading it means that a positive effect is expected following a protocol upgrade, the Ethereum Merge in this case. The price usually moves higher towards the date due to anticipation and hype, but doesn’t actually have positive price continuation afterwards.

Ethereum merge hype

ETH/USD – Daily Time Frame.

This is actually the second time Ethereum has had a bull run or rally due to news around the Ethereum Merge. The first time was in January 2022 which led to Ethereum increasing to $3,597 before getting rejected at resistance, offering 62.48% potential gains.

The second time was just recently where Ethereum rallied to $2,020 and got rejected at resistance once again. Buying from the absolute bottom in the extreme fear phase of the market cycle in May would have proven to be lucrative.

Speculation around the Ethereum Merge has pushed the price of Ethereum higher and higher into overbought positions on the relative strength index, but now buyers are holding off as we see a bearish reversal potentially play out.

Many investors in the market may not realize that the move over to Proof-Of-Stake for Ethereum doesn’t actually have a significant effect on the performance of ETH as a blockchain. Gas fees will remain unaffected and so will throughput and scalability, the most noticeable change is the positive effect on energy consumption (over 99% reduction).

It is imperative that Ethereum can hold the $1,429 support level in order to avoid price continuation to the downside. If Ethereum loses support it may see negative momentum all the way down to the next key support level of $1,281.

Ethereum Crash Bullish Perspective

Ethereum is notorious for volatility and oversold positions on the 4-hour time frame. Despite the negative price action of Ethereum recently, ETH is currently trading with a bullish reversal pattern known as a falling wedge.

There is a good chance we may print a swing-high up to the $1,665 resistance trendline and if we successfully breakout Ethereum could pump up to $1,820 again in 2022.

September is famous for being a terrible month for the performance of blockchain related assets, especially Bitcoin. As a matter of fact over 75% of Septembers for cryptocurrency are typically bearish.

Bitcoin Monthly Returns

BTC/USD – Monthly Performance Chart. Source: Bybit.

We can see that the historical data in the chart above tells us that September never usually is in our favor if we are looking to grow our portfolios by USD value.

Personally, I like to see September as an undervaluation reaccumulation phase which could potentially be a golden opportunity to stack more blue-chip cryptos before October, November and December which have a much higher chance of seeing positive performance.

Taking advantage of this data and the extreme fear in the market could be prosperous leading up to Q4 2022.

Ethereum 4 Hour RSI

ETH/USD – 4 hour time frame.

Analyzing the Ethereum price charts up close and personal, I’ve come to notice a pattern on the 4-hour time frame. We can see every time that Ethereum reaches the oversold territory (RSI below 30) on the relative strength index we usually see a bullish reversal in the price.

Almost every single time this has offered over 20% in returns when buying the extreme fear and the dip. I speculate that we may see a pump soon for Ethereum as the buying pressure is simple so huge and as the #2 cryptocurrency in terms of market capitalization is certainly here to stay and have a prosperous long-term existence in the crypto markets.

In my opinion, Ethereum is the tip of the spearhead of all altcoins and will always remain in second position versus other cryptocurrencies.

It is worth also noting that crypto influencer @CryptoHayes envisions the current Ethereum issuance chart as the only data that matters post-merge. His outlook reflects that he is extremely bullish on the future of Ethereum.

The only chart that matters post-merge.

Show me that drop in $ETH issue every day, and I will show you a BULL FUCKING MARKET! pic.twitter.com/YfaslkJEDr

— Arthur Hayes (@CryptoHayes) September 15, 2022

I think it is very unlikely we will see Ethereum nosedive down to $1,000 again, if we do it will be another washout where the retailer investors get shaken out of their positions. I expect big things for the future of Ethereum, and price levels beyond $10,000 still seem pragmatic by the next crypto bull run.

Ethereum is Becoming Deflationary?

Over the last 6 years the supply of Ethereum has increased exponentially, since the removal of Proof-Of-Work it is forecasted that we are going to see a significant reduction of the supply of Ethereum over the next 2 years.

This means Ethereum will have more scarcity just like Bitcoin. According to Ultrasound.Money it is projected that by 2088 Ethereum will have slashed its current circulating supply in half to 60 million.

But how about the next 2 years? Currently the circulating supply of Ethereum is 120.5 million. The next two years look very fruitful for Ethereum which has now moved over to Proof-Of-Stake. By mid-2024 it is expected that the supply of Ethereum would have reduced down to 116.4 million.

Accumulating in the crypto bear market and applying a long-term investment strategy for Ethereum could potentially provide huge gains by 2025.

Ethereum supply chart. Source: Ultrasound.Money.

Whilst I do not think Ethereum will recover to levels that will create a new all-time high this year, I think current price levels could be described as undervalued. It is impossible to time your entry perfectly at the top or bottom, you will simply never achieve a perfect entry.

We can however use long-term data to help us gauge where the bottoms and tops of a market cycle may potentially be. My favorite example of this is the Bitcoin logarithmic regression chart, also known as the Bitcoin rainbow chart. Sometimes simple data is the best kind of data and this is exactly what this is.

I like to use the Rainbow chart as a barometer for risk levels in the crypto market. Right now the downside is minimized and accumulation is in our favor. We could apply the same logic to buying Ethereum today.

Source: Blockchain Center.

The above chart reflects that we are back in the ‘Basically a fire sale’ range of the rainbow chart. The last time we were in the dark blue ribbon of the rainbow price chart was March 2020 where we had the Covid-19 cyptocrash, we could also look at this as a black swan event.

Personally, I also see the Terra Luna crash in May 2022 as a black swan event which led to catastrophic effects across the entire blockchain markets and caused Bitcoin and Ethereum to crash heavily bringing us back down to the dark blue ribbon of the rainbow price chart.

If history repeats itself there would be massive upside potential from here, whether you’re buying Ethereum, Bitcoin or Tamadoge the likelihood of prosperity is high.

Ethereum Crypto Video Analysis

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Author: Jacob Bury

Jacob Bury got invested in Cryptocurrency during his travels in the Philippines when Covid first broke out in March 2020. He hasn’t looked back since.
In addition to being a technical analyst and blockchain investor, Jacob has his own YouTube channel with 4,000 subscribers.
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