• Bulls are upbeat Ethereum’s (ETH-USD) crypto dominance is set to become more absolute
• No wall of worry climbing, risk asset correlation and price action troubling for ETH
• Ethereum bears and bulls have key price levels to enable stronger trade decisions

A jump in Covid-19 cases in China is the headline drag on risk assets of all types Monday. That includes cryptocurrency asset Ethereum (ETH-USD), which moved lower and in lockstep with other heavyweights such as the S&P 500 before rising later in the day. But should that decline be a cause for alarm?

In a crypto market largely about utility centered on the speculative trading of thousands of digital coins and tokens, the smart contract open-source blockchain network Ethereum and its native currency Ether remain the most resolute reasons to view the crypto market as something more powerful in the making.

Now Ethereum is promised to be an even more ubiquitous force in everything digital as the network transitions from a challenged proof-of-work (PoW) protocol to a vastly more efficient proof-of-stake (PoS) mechanism. But does it make ETH a buy, and should today’s weakness be viewed as an even stronger opportunity?

Pros and Cons

Unmatched decentralized applications (DApps). A surge in decentralized finance (DeFi). Nonfungible tokens (NFT). They’re what make Ethereum the most active blockchain network and Ether the market’s second largest crypto behind Bitcoin (BTC-USD).

And according to ETH’s proponents, Ethereum is about to grow more robust as the PoS upgrade to Ethereum 2.0 will offer a more secure, efficient and greener network without equal in the digital asset market.

But not everyone is upbeat on Ethereum.

Costly delays to the transition abound. Blameful fingers can be pointed at Covid-19’s supply chain impact on a global shortage of semiconductor chips critical for the upgrade. And with “The Merge” to Ethereum 2.0 being kicked down the road to a less reassuring year’s end from a promised June completion, it’s challenging developers, miners and bullish ETH traders alike.

There’s also the staking mechanism itself. For all the good that’s supposed to come with it, the process is causing worry of significantly lower staking yields to users.

For others, like the chair of the Financial Stability Board (FSB), see cryptos as a larger threat given the war in Ukraine and their illicit uses, it’s less about enthusiasm or sighing over lesser rewards in staking ETH, but of concern of global destabilization by digital assets.

Ethereum Is at Risk

Source: Charts by TradingView

Hamstrung consumers and battle fatigued bullish traders. Inflation. Rising rates. Russia. Covid-19. It’s proven a headwind for risk assets like Amazon (NASDAQ:AMZN), Tesla (NASDAQ:TSLA) and others. And understandably so.

But concerningly, those mounting walls of worry have proven unfit for climbing and buying ETH as an alternate asset too.

Rather than a long-held belief of being a store of value and safe haven, the correlation between the ups and downs of corporate-run and government-trafficked assets and the price of ETH coin have proven increasingly tethered since the start of 2020. And today, that’s a hazard.

Given the still mostly stretched and at-risk valuation of equities, it’s easier to view ETH’s weekly price chart as a bearish head and shoulders topping formation. If the neckline fails and given the size of the structure, the Ethereum coin could easily get sliced in half. And without question, the technical potential for a much steeper decline exists.

If the neckline holds, an eventual bearish pattern failure above the pattern’s right shoulder could trigger a wave of buying within a still intact uptrend, one that’s arguably in much stronger position to rally to new highs.

Ethereum Takeaway

Given the pros and cons, warnings and cheers and bears and bulls making their impact on ETH, at the moment, I’d give the advantage to the coin’s bears with a confirmed pivot high in the right shoulder and bearish stochastics in place. But I wouldn’t recommend positioning bearishly in the Ethereum coin right now.

Today, ETH is really anybody’s game and probably best to simply monitor from the safety of the sidelines in a notoriously volatile coin.

With Ethereum now four weeks into patterned shoulder weakness, upside risk of 20% and a longer-term monthly stochastics signaling a bullish crossover in oversold territory, ETH is a much riskier short within the topping formation. That’s not to say it’s a buy either though.

Buying the coin without a weekly bottoming pattern in place poses its own larger risks. The fact is “uptrend” or neckline support remains similarly well-removed from current prices. And without a candlestick reversal in place and firming weekly stochastics to support the trade, there’s little to suggest a good investment for buyers without incurring significant and avoidable risk.

On the date of publication, Chris Tyler holds long positions in Grayscale Ethereum (ETHE) and Grayscale Bitcoin (GBTC) (either directly or indirectly). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.