Surge or bleed? Why the merger might not save Ethereum’s price from “Septembear”


Ethereum’s native token, Ether (ETH), is not immune to downside risk in September after recovering around 90% from its low of around $880 in June.

Much of the token’s upward movement is attributed to the merger, a technical upgrade that would make Ethereum a proof-of-stake (PoS) protocol, slated for September 15.

But despite impressive gains between June and September, Ether is still trading almost 70% below its high of around $4,950 from November 2021. Therefore, its possibility of a decline remains on the cards.

ETH/USD weekly price chart. Source: Trading View

Here are three Ethereum bear market indicators that show why more downside is likely.

Sell ​​Ethereum Merge News

Ethereum options traders expect Ether’s price to hit $2,200 from its current pre-merger level of $1,540, according to Deribit data compiled by Glassnode. Some even see the price hitting $5,000, but enthusiasm seems flat after the change in selling point.

There appears to be demand for downside protection among traders post-merger, indicated by a metric known as the “implied options volatility smile” (OIVS).

The OIVS illustrates the implied volatilities of options with different strike prices for the specific expiration date. Thus, non-equity contracts generally show higher implied volatility, and vice versa.

For example, in the Ethereum options expiration chart for September 30 below, the slope and shape of the smile help traders gauge the relative cost of options and gauge what kind of tail risks the market is pricing in. .

Ethereum OIVS for contract expiring September 30, 2022. Source: Glassnode

Thus, it shows strong buy-side demand for ETH calls expiring in September, indicated by the upward slope of the volatility smile, showing that traders are willing to pay a premium for long exposure.

“Post-merger, the left-tail values ​​significantly higher implied volatility, indicating that traders are paying a premium for ‘sell the news’ put option protection post-merger,” Glassnode analysts wrote, quoting the OIVS chart below which also includes Call and Place Open Interest at different strike rates.

Ethereum OIVS for contract expiring October 28, 2022. Source: Glassnode

In other words, ETH traders hedge their bets in the event of a news sell event.

Hawk Federal Reserve

Other bearish clues for Ethereum come from its exposure to macroeconomic events, primarily the Federal Reserve’s quantitative tightening.

Last week, Fed Chairman Jerome Powell reiterated the central bank’s commitment to curbing inflation, noting that it “must continue until the job is done.” In other words, Powell and his associates would likely raise interest rates by 0.5% to 0.75% at their next policy meeting in September.

Rate hikes have recently been bad news for the ETH/USD pair, given the growing positive correlation between a broader crypto sector and traditional risk indices against the outlook for lower cash liquidity. For example, the daily correlation coefficient between ETH and Nasdaq on September 3 was 0.85.

ETH/USD and Nasdaq daily correlation coefficient. Source: Trading View

Therefore, the possibility of Ether falling alongside riskier assets is high, especially if the Fed increases by 0.75%.

This giant Ether “carries the flag”

From a technical standpoint, Ether is painting what appears as a bear flag on its weekly chart.

Bearish flags appear when price consolidates higher in a parallel ascending channel after a steep decline. They resolve after the price breaks out of the downward channel and, as a rule of thumb in technical analysis, fall by as much as the length of the previous downtrend (flagpole).

Ether tested the lower trendline of the Bear Flag as support this week. From there, the Ethereum token could either bounce back to retest the flag’s upper trendline (~$2,500) as resistance or break below the lower trendline to continue its dominant downtrend.

Related: ETH Price Outlook for The Merge: Bullish or Bearish? | Interview with TheChartGuys

Given the factors discussed above, the ETH/USD pair is likely to enter the bear flag breakout phase in September, as shown in the chart below.

ETH/USD weekly price chart with “bearish flag” pattern. Source: Trading View

Therefore, ETH’s bear flag profit target stands at nearly $540 in 2022, down about 65% from today’s price.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.


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