Bitcoin
BTC$20 819.49

-2.55%

Ethereum
ETH$1 199.53

-3.10%

Tether
USDT$0.999155

-0.03%

USD Coin
USDC$1.000053

-0.02%

Binance Coin
BNB$233.93

-2.03%

Binance USD
BUSD$1.001192

0.22%

Ethereum price dragged down below $2K as US inflation hits highest level since 1991


14 Jul 2021

#Ethereum

The second-largest cryptocurrency sells off in line with Bitcoin as traders assess the latest U.S. inflation data. Ether (ETH) perhaps had the most bullish outlook entering the July session, with the Ethereum Improvement Proposal (EIP) 1559 promising to make ETH scarcer through the network’s first-ever burning mechanism. But so far into the month, the second-largest cryptocurrency by market capitalization has vastly tailed its top rival Bitcoin (BTC). The positive correlation was visible on Tuesday, following the New York opening bell when Ether plunged below $2,000 to hit a two-week low in sync with Bitcoin, which slipped below $32,500.

As it happened, the ETH/USD exchange rate reached its intraday low of $1,961.10 following a 3.43% drop. The pair’s modestly bearish move locked step with Bitcoin, which apprehensively fell as traders assessed the latest United States inflation data.

The U.S. Consumer Price Index ticked up 0.9% in June to hit 5.4% year-over-year, marking its highest level since 1991. Traders sold off Bitcoin and other cryptocurrencies on the news, pointing to fears that a continuously rising inflation rate would prompt the U.S. Federal Reserve to withdraw its quantitative easing policies.

Macro inflation vs. Ethereum deflation

In detail, the minutes of the Federal Open Market Committee’s June meeting revealed officials in favor of at least two rate hikes by the end of 2023, providing the inflation rate runs too hot above their 2% target. The central bank has been maintaining interest rates below 0.25% since March 2020, which sapped investors’ dollar demand and, in turn, had boosted demand for so-called safe-haven assets, including Bitcoin.

Ether, whose one-year correlation coefficient with Bitcoin stands at 0.64, according to Crypto Watch, surged all across 2020 and in the first quarter of 2021 on similar macroeconomic fundamentals. The cryptocurrency, however, logged better gains than Bitcoin, owing to its role in a flurry of booming crypto sectors, including decentralized finance, nonfungible tokens and stablecoins.

But the Ethereum network also suffered from technical setbacks in the form of a jammed bandwidth. An overloaded blockchain prompted miners — entities that process and add transactions to Ethereum’s public ledger — to raise their fees. In some cases, users were forced to pay more gas fees than the amount they were transferring. The problems appear to have come to a final resolution, as Ethereum intends to switch its protocol from a miner-friendly but energy-intensive proof-of-work to a faster and cheaper proof-of-stake (PoS). In detail, the so-called London hard fork, which includes five improvement proposals, expects to counter those inefficiencies.

One of the improvement protocols, called EIP-1559, introduces a new fee structure to make Ether less inflationary. It proposes to burn a portion of the fee collected in ETH, thus adding deflationary pressure on the cryptocurrency. In addition, the upgrade replaces miners with validators. In doing so, Ethereum requires each validator to lock at least 32 ETH to run its PoS network.

That also put a good portion of ETH supply out of circulation, making it as scarce as Bitcoin. For Konstantin Anissimov, executive director at CEX.IO, rising macro inflation provides more bullish opportunities to Ether as much as it does to Bitcoin. He added that he anticipates the ETH/USD exchange rate to hit $3,000 on an anti-inflation narrative.

“As things stand, the Federal Reserve has increased the size of its balance sheet from early 2020 to over $8 trillion — a substantial rise,” he explained, adding: “The reduced pricing is an avenue for market investors to accumulate the coins at a discount while trusting in their abilities to serve as the right hedge against the inherent inflation.”

And so it appears, Ether accumulation is happening at a rapid pace. According to CryptoQuant, a South Korea-based blockchain analytics firm, the total ETH reserves across all crypto exchanges have dropped by more than half in the wake of its Q2/2021 price correction from $4,384 to $1,700.

Correlation risks

Ether’s correlation with Bitcoin remains a bottleneck as ETH eyes further highs. Nevertheless, Josh Arnold, a financial analyst associated with Seeking Alpha, highlighted that Ether and Bitcoin are sometimes negatively correlated. A 0.64 correlation efficiency is not perfect. 

Arnold instead focused on Ether’s price chart structure, noting that the cryptocurrency formed a descending triangle pattern upon topping out in mid-May 2021. Descending triangles are typically continuation patterns that lead the prices in the direction of their previous trends after a small period of consolidation.

Arnold noted that Ether bulls need to hold Triangle support to maintain their upside bias or they will risk losing the market to bears. He explained: “A descending triangle break to the downside would see Ethereum plumb new 2021 lows and try to find support again, but at much lower levels.”

But given Ether’s resilience against bears, Arnold anticipates that the cryptocurrency might end up rising higher. 


Related

MultiBank Group Leverages Its Power to Increase Global Crypto Adoption
MultiBank Group Leverages Its Power to Increase Global Crypto Adoption
Bitcoin and Ether reached two of three bears' targets
Bitcoin and Ether reached two of three bears' targets
Ethereum double Doji pattern hints at a 50% ETH price rally by September
Ethereum double Doji pattern hints at a 50% ETH price rally by September
Flight of cryptocurrencies interrupted
Flight of cryptocurrencies interrupted
ETH/USD trading pair attracts more traders in the first quarter of 2022
ETH/USD trading pair attracts more traders in the first quarter of 2022
Is The Virtual Land Market Becoming a Bubble?
Is The Virtual Land Market Becoming a Bubble?
MultiBank Group reveals new crypto brand, MultiBank.io
MultiBank Group reveals new crypto brand, MultiBank.io
Two key Ethereum price metrics suggest traders will struggle to hold the $2K support level
Two key Ethereum price metrics suggest traders will struggle to hold the $2K support level
Join Blablagame presale right now
Join Blablagame presale right now

Top Cryptocurrencies with Price Predictions

# Crypto Prediction Accuracy CVIX Price 24h 7d Market Cap 7d price change
1 Bitcoin (BTC) BTC Bitcoin predictions 56.8% 92 $20 819.49 -2.55% 2.10% $397 208 747 686 BTC 7 days price change
2 Ethereum (ETH) ETH Ethereum predictions 56.8% 88 $1 199.53 -3.10% 8.46% $145 531 436 544 ETH 7 days price change
3 Tether (USDT) USDT Tether predictions 93.6% 1 $0.999155 -0.03% 0.02% $66 810 781 137 USDT 7 days price change
4 USD Coin (USDC) USDC USD Coin predictions 94% 1 $1.000053 -0.02% -0.05% $55 805 560 761 USDC 7 days price change
5 Binance Coin (BNB) BNB Binance Coin predictions 61.2% 88 $233.93 -2.03% 9.40% $38 195 534 234 BNB 7 days price change
6 Binance USD (BUSD) BUSD Binance USD predictions 93.2% 1 $1.001192 0.22% 0.23% $17 410 107 407 BUSD 7 days price change
7 XRP (XRP) XRP XRP predictions 60.4% 80 $0.354166 -3.32% 10.84% $17 121 491 314 XRP 7 days price change
8 Cardano (ADA) ADA Cardano predictions 61.6% 78 $0.487523 -3.35% 0.61% $16 455 147 553 ADA 7 days price change
9 Solana (SOL) SOL Solana predictions 66% 71 $38.54 -5.51% 12.06% $13 211 391 858 SOL 7 days price change
10 Dogecoin (DOGE) DOGE Dogecoin predictions 59.6% 85 $0.072111 -6.23% 21.48% $9 566 969 767 DOGE 7 days price change
11 Polkadot (DOT) DOT Polkadot predictions 59.2% 81 $7.79 -4.52% 1.16% $7 695 411 076 DOT 7 days price change
12 Dai (DAI) DAI Dai predictions 96% 1 $1.000014 -0.05% 0.03% $6 797 845 632 DAI 7 days price change
13 TRON (TRX) TRX TRON predictions 60% 88 $0.067640 3.12% 11.40% $6 256 465 214 TRX 7 days price change
14 SHIBA INU (SHIB) SHIB SHIBA INU predictions 62% 78 $0.000011 -6.36% 36.59% $6 044 851 061 SHIB 7 days price change
15 Wrapped Bitcoin (WBTC) WBTC Wrapped Bitcoin predictions 54.8% 92 $20 829.37 -2.45% 2.42% $5 511 007 627 WBTC 7 days price change

Be the first to receive Cryptocurrency Price Predictions and Forecasts daily

Get cryptocurrency price predictions, forecasts with analysis and news right to your inbox.

© 2015-2022 Crypto-Rating.com

The usage of this website constitutes acceptance of the following legal information. Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website, including information about the cryptocurrencies and bitcoin is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Crypto Rating shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about cryptocurrencies. The entire responsibility for the contents rests with the authors. Reprint of the materials is available only with the permission of the editorial staff.