The Risks for Ethereum Buyers Are Mounting

The trend is up, way up. And unless you enjoy a miserable hangover with company, when it comes to today’s Ethereum (CCC:ETH-USD) and buying the ETH-USD altcoin more smartly, it’s time to give a more bearish price forecast its dues. Let me explain.

Concept coins for Ethereum (ETH) and Ethereum Classic (ETC).
Source: Shutterstock

ETH. Ether. It’s Ethereum platform’s native currency. It’s the second largest coin by valuation behind Bitcoin (CCC:BTC-USD). As well, many see a changing of the guard in the world of digital assets in early 2022 and the crypto eventually surpassing BTC’s market cap.

A much more environmentally friendly, faster and more efficient Ethereum 2.0 is set to be fully up and running next year. And with Ethereum already today’s dominant vehicle for emerging decentralized finance applications including the red hot non-fungible token (NFT) market, ETH has nowhere to go but up! Right?

A Bullish Chorus for Ethereum

To be fair, ETH has just broken out in the last couple weeks to record highs. Also, word on the street, chatrooms and just about anywhere one looks is you haven’t seen nothing yet.

To put your faith in today’s bullish chorus, ETH’s party is just getting started. And today that consensus will tell you the only thing to focus on are their increasingly confident and popular nothing-but-blue-skies price projections.

In recent days and among others, brokerage Jeffries has Ether hitting $10,000 on the back of next year’s network upgrade to Ethereum.

Even InvestorPlace’s typically straight-laced, value-driven Mark Hake is forecasting $15,000 for ETH over the next couple years.

And I get it, well some it at least. That’s not just lip service either. I own ETH-USD vis-à-vis the Grayscale Ethereum Trust (OTCMKTS:ETHE). And I have for quite some time now.

Not the Perfect Investment

But Ether isn’t the perfect investment and very few appear to be paying any attention to that two-way street known as volatility.

A run-of-the-mill correction could sink the crypto by 30%. But with Ethereum’s larger price swings, a downturn could reasonably be much more severe. And don’t think it’s not possible either.

It wasn’t that long ago, this past summer in fact, when ETH was 175% beneath today’s prices. That “fair value” also followed a massive recalibration of bullishness, which sank the altcoin by just over 60% in less than two months.

Sure, some might insist that decline was related to bearish and critical regulator warnings and actions from China, Turkey, the U.S. and others. But now we’ve got that all figured out, right? Wrong.

Even if that type of interference doesn’t have lasting implications or if regulators were to go into permanent hibernation, some kind of bearish disruption in ETH is lurking nearby. And to dismiss it would be a big mistake.

A Question

Bottom-line, when ETH is once more in the midst of a bearish cycle and losing 15%, 30% or God forbid 60% like this past summer over a short period time, how’s an Ether purchase tied to Jeffries, Mark’s or any number of bullish price projections and upbeat thesis’ feeling then?

It’s a question that needs to be asked before and not during the next inevitable drawdown or risk a greater chance of making a second bad decision in ETH and selling on weakness that goes well past most of our mercy points.

What’s more, given today’s lopsided serenading in ETH and what we’re seeing on the monthly price chart, trimming one’s stake and avoiding a purchase in Ether is looks increasingly timely.

Ethereum Monthly Price Chart

Ethereum (ETH-USD) a breakout increasingly at risk of turning into a more bearish double top variation


Source: Charts by TradingView

FUD or fear, uncertainty, and doubt are always going to be part of the equation when it comes to investing. But these days it’s the pervasive FOMO or fear of missing out in ETH that’s making a purchase that much riskier.

Technically and of all things, the hazard in ETH-USD is playing out in a classic breakout which kinda sorta has the look of a cup-shaped base.

Yet despite the steeper trend that’s formed during the pattern’s making, momentum as evidenced by a weak-looking and tenuous stochastics is not only absent, but also a warning.

Watch for the Bear

Given the circumstances, the observation is the current breakout has a stronger-than-average chance of turning into a bearish variation of a double-top pattern.

Should our worries begin to play out and a retreat back below $4400 in ETH starts to trend on twitter as #ETHdoubletop or something along those lines, I’ll be looking at all those other much lower support lines on Ether’s monthly chart for the less popular, but correct thing to do once more.

On the date of publication, Chris Tyler holds (either directly or indirectly) positions Grayscale Bitcoin Trust (GBTC), Grayscale Ethereum Trust (ETHE) and Grayscale Ethereum Classic Trust (ETCG). 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.


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