Ether prices are down today after the Ethereum network’s long-awaited transition to proof-of-stake finally happened.
The world’s second most valuable digital currency by total market cap fell below $1,450 around 8 p.m. EST, figures from TradingView show.
At the time, the cryptocurrency was down more than 12% from a previously reached intraday high of $1,655.00, additional TradingView data shows.
After hitting its intraday low, the digital currency recovered slightly and was trading just above $1,470 at the time of writing.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
A crucial milestone
The network’s so-called merge, in which it switched to a new consensus mechanism, was an event that drew a lot of attention in recent weeks, with cryptocurrency fund manager Jacob Eliosoff calling the milestone “probably the biggest change to a blockchain since.” described Bitcoin was introduced in 2009.”
The switch is designed to drastically reduce network power consumption, reducing it by over 99.9%.
Developers involved with Ethereum have stated that the change will improve the security of the network and pave the way for scalability improvements.
The so-called merge is the first five key stages which the network is expected to go through in the near future.
The next phase, dubbed “Surge,” will allow Ethereum to use sharding, which would split the network into smaller parts to improve its bandwidth for processing transactions.
Buy the rumor, sell the news
Tim Enneking, managing director of Digital Capital Management, described the price action that took place after the merger as “an absolute textbook example of ‘buy on rumor, sell on news’.”
“In this case in particular, however, we don’t expect the decline to last very long as more news comes in on how the post-merge PoS change actually works,” he added.
“Seems to be a real feat so far, and assuming that proves correct, we see a bull market in ETH on the horizon.”
Important technical levels
Next, Enneking provided some technical analysis, emphasizing that there are multiple price levels at which investors could place significant amounts of buy and/or sell orders.
“As for TA, for ETH really every round number is in the hundreds with 2k being a massive resistance level (felt lower when traders ran it up front),” he said.
Jake Wujastyk, VP, Strategic Growth at TrendSpider, offered a more specific perspective on the matter.
“Ethereum recently broke through its symmetrical triangular support zone today, with previous July and August lows of $1,420-$1,440 in play. If this level breaks, a retest of previous lows could be in the offing,” he predicted.
Armando Aguilar, an independent cryptocurrency analyst, pointed out similar levels.
“Looking to the last bottom (June 2022), Ethereum faced another ~12% drop to mid-$800s. The next downside resistance level is in the low $1,400 area and if the levels break we could see a downtrend into the $1,200 area,” he said.
“Given the post-merger optimism and market longs, investors expect Ethereum to break the upper resistance above the $1570 area to reclaim the mid-$1600 price,” Aguilar added.
Relative Strength Index
The market observer also mentioned the Relative Strength Index, a tool that technical analysts use to measure the extent to which an asset is either oversold or undersold.
The RSI has readings between zero and 100, and when it falls below 30, it usually means that the asset in question is oversold, while a reading above 70 generally signals an overbought situation.
“Investors should also keep an eye on the RSI, which closed at 31.9,” Aguilar said.
“The last time the RSI closed in this range was mid-August and Ethereum rallied significantly in price.”
Aguilar also highlighted several key variables that could affect Ether as well as the rest of the cryptocurrency markets in the future.
He specifically mentioned the upcoming Federal Reserve monetary policy meeting, scheduled for September 20-21, where the Federal Open Market Committee is expected to announce another significant hike in the central bank’s benchmark interest rate.
Recent data from the CME FedWatch tool suggests that markets are largely expecting the financial institution to hike rates by 75 basis points.
“Next week’s Fed meeting will add additional pressure on traditional and crypto markets,” Aguilar predicted.
“All eyes of investors will be on the Fed meeting and the next rate hike,” he said.
“Also, the US Dollar Index remains strong and continues to put pressure on FX and overseas purchasing power,” Aguilar noted.
Recently, the United States Dollar Index (DXY), which measures the greenback’s value against other major fiat currencies, fluctuated near its highest level in over 20 years.
The greenback’s strength has coincided with investors’ reluctance to buy risky assets, Jesse Proudman, VP, Crypto Investing at Betterment, recently pointed out.
Disclosure: I own some Bitcoin, Bitcoin Cash, Litecoin, Ether, EOS and Sol.