Ether and other alternative cryptocurrencies, popularly known as altcoins, are taking a hit alongside bitcoin as the dour macro mood overshadows bullish idiosyncratic narratives.
The native token of Ethereum’s blockchain is trading near $1,758 at press time, down 6% on a 24-hour basis. The cryptocurrency touched a three-week low of $1,721 early today, having peaked above $4,000 in May, according to CoinDesk 20 data. Other prominent altcoins like XRP, cardano, uniswap, chainlink, and stellar are nursing declines around 10%. Bitcoin, the crypto market leader, is down 5% at $29,700.
“We’re seeing risk-off moves in equity, FX and commodities,” said Edmond G., head of trading at B2C2. “Crypto isn’t immune from traditional market sentiment and is also caught up in the legs lower. So far, we’re seeing very little movement [higher in ETH] while heading into the Ethereum Improvement Proposals (EIP) 1559 upgrade proposed [for] Aug. 4.”
Global equity markets faced selling pressure on Monday, while the dollar rose on concerns a rebound in coronavirus cases would derail the global economy. As a result, bitcoin and crypto, being at the far end of the risk curve, are suffering losses.
According to some analysts, Ethereum’s impending upgrade aims to burn part of the transaction fees and make ether less inflationary.
“The ether supply burn would be significant even with the growth of the layer 2 scaling solutions,” Noelle Acheson, head of markets insights at CoinDesk sister company Genesis Trading, said. ” Whatever amount ends up being burned, it will be more than what’s currently being burned, so the upgrade does reduce the supply growth.”
Acheson said that while the upgrade wouldn’t directly reduce ether transaction fees, a sour spot for DeFi protocols and traders, it will “make them more transparent and manageable.”
However, Delta Exchange CEO Pankaj Balani said markets priced in the bullish EIP narrative earlier this year.
Ether nearly doubled to $4,000 in the four weeks to mid-May even as bitcoin traded between $50,000 and $60,000. Ether’s decoupling was mainly powered by the optimism surrounding the EIP upgrade.
“Crypto markets are now in a slow grind lower and vulnerable to negative macro news,” Balani said in a WhatsApp call. “Ether and other altcoins will see a bloodbath if bitcoin slides toward $20,000.”
The probability of bitcoin falling that low and nuking the broader market has increased, with the cryptocurrency looking to establish a foothold under $30,000. “When a price dumps and stays flatlined at the lows, forming a ledge,” that says the market is doomed, according to trader and analyst Alex Kruger. “You can see that in most charts in the past 24 hours.”
According to Patrick Heusser, head of trading at Crypto Finance, $29,000 and $1,700 are crucial supports for bitcoin and ether, respectively. “How low can it go? Probably down to $20K,” he said. “If you look at the liquidity pool structure, there was not much trading on the way up, except a bit around $23,000.”
Ether could run into stronger selling pressure, as blockchain data shows an increased flow of coins onto exchanges. “We are seeing lending platforms like BlockFi sending large amounts of ETH to Coinbase, possibly to liquidate,” Alex Svanevik, CEO of blockchain data company Nansen, said.
The only positive news for crypto bulls is that the market is seeing low volumes while grinding lower. “It potentially signals that sellers are exhausted and that the market is waiting for some positive news,” Heusser said.
Further, equity markets are showing signs of stability at press time. The European markets are trading higher, and the futures tied to the S&P 500 are pointing to a positive open with a 0.60% gain. “It could be a bounce time for crypto, as equity market panic looks to be over,” Kruger said. “It makes sense to move stop loses on bitcoin shorts higher to $31,000.”