The blame game had fingers pointing every which way last week. But when it comes to crypto asset Ethereum (CCC:ETH-USD), is now a better time to buy, sell or hold off on ETH? Let’s dive into what’s happening, off and on the coin’s price chart, then offer a risk-adjusted determination aligned with those findings.
Unless you’re still using AOL’s browser and dial-up internet to power your e-Trade account, investors are undoubtedly aware of this past week’s dramatic plunge in Bitcoin (CCC:BTC-USD). The largest digital asset by size unraveled by 25% while sending its valuation decisively back below $1 trillion and toward $700 billion.
But it was the selloff in the crypto market’s second largest digital asset ETH, which proved more devastating for many of today’s crypto currency investors or rather, those dedicated to overreaching within Ethereum’s momentum trade.
At a market cap of around $275 billion, ETH is the crypto market’s second largest coin. Obviously, there’s still a ways before Ethereum goes head-to-head with Bitcoin’s much larger valuation. But this year’s dazzling gain of about 200% and roughly 10-fold BTC’s performance is impressive.
More remarkable? The rise in the Ethereum asset follows an even larger 60% price correction off ETH’s May peak.
Short-Term Blinders and Drivers in Ethereum
So, what gives in ETH? For last week’s doom-and-gloom crowd there were a few factors driving the price action. China’s government signaled a crackdown on financial institutions ability to use cryptos. Bar none, the news was last week’s top headache for digital assets of all sizes and flavors.
Another drag on Ethereum and other cryptos were ongoing worries of U.S. regulatory action following the Colonial pipeline extortion and ransom-taking criminals all too happy to accept non-traceable cryptos for payment.
News out of Tesla (NASDAQ:TSLA) didn’t help matters either. Front man Elon Musk has vowed to pull the plug on Bitcoin as a medium for payment due to the crypto’s notorious carbon intensive footprint. Famously, keeping BTC’s blockchain going requires more energy than the entire yearly consumption of Sweden. Right now, Ethereum is less of a grid hog, but it’s energy requirements are still on par with Romania.
Speaking of Elon Musk, let’s not forget Dogecoin (CCC:DOGE-USD) and its canary-like warning to the larger crypto market. The meme crypto’s valuation stands at an eye-popping $43 billion despite being birthed as and remaining largely a joke. And recklessly Elon Musk has been a consistent and shameless tweeting emcee of sorts for the highly speculative coin.
Bottom line, DOGE is the type of unhinged speculative excess which routinely bites back when the narrative for a market turns less friendly. Yet, when it comes to ETH, the coin’s best days are increasingly likely still in front of it.
Separating ETH’s Wheat from the Chaff
Ethereum’s superior blockchain ledger technology has made the platform a standout in terms of growing utility value for decentralized finance (DeFi) applications. In fact, while one billionaire plugs cute DOGE memes on Twitter, outspoken businessman and savvy investor Mark Cuban credits ETH with cryptocurrency’s strongest functionality and smart contracts which will ultimately overshadow Bitcoin’s use.
Cuban’s views speak for themselves with no memes or emojis required. And as Ethereum transitions from its electricity prohibitive “proof of work” to an alternative “proof of stake” system, which could reduce its energy consumption by as much as 99.95%, there’s more for ETH investors to be upbeat about. There’s more too.
Another key driver for Ethereum are fast-growing one-of-a-kind non-fungible tokens or NFTs which use ETH’s technology. Loosely, NFTs are unique, digital properties comprised of video, audio and other files stored on the digital-ledger Ethereum technology. Think digital art.
As NFT’s gain popularity, the more Ether tokens are in demand. And that’s already happening today. With major players from the NBA to New York Stock Exchange getting in on the action selling NFT trading cards and celebrated IPOs and investors liking what they see, digitally of course, and already paying upward of tens of millions of dollars for those rights – it’s no wonder 2021 has been a winning game for ETH investors.
Ethereum Weekly Price Chart
Source: Charts by TradingView
All risk assets correct. Just ask equity investors this year holding Apple (NASDAQ:AAPL) or Elon’s TSLA. Both are down in 2021 despite significant gains in the broader averages. But the best companies bounce back with setbacks like today’s likely to become very profitable opportunities longer term. Right now, ETH is in this sort of position.
Technically, ETH’s correction has put the token into a testing position of trendline, Fibonacci and price support dating back to its former all-time-high set during the crypto run up of 2017 – 2018. Volatility remains intense, though. And with ETH up nearly 19% in Monday’s session, last week’s now well-removed low and out-of-position weekly stochastics make a buy decision prohibitive.
For the time being, I’d let ETH continue to settle in. There is a daily chart hammer which has been confirmed today. But to help ensure a more meaningful low is in place, sticking with the weekly price chart makes sense. In the not-too-distant future and if the price action can demonstrate signs of bottoming on that perspective, purchasing anew or adding to a position on weakness will observably have more working in investors’ favor than not.
On the date of publication, Chris Tyler holds (either directly or indirectly) positions Grayscale Bitcoin and Ethereum Trusts (GBTC and ETHE). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.