The price of Ether is currently experiencing a decline, and various indicators are suggesting that further downside could be on the horizon. On July 24, Ethereum (ETH) witnessed a drop to its monthly low of $1,825, influenced by Bitcoin’s negative price action and amidst concerns surrounding macroeconomic conditions and a potential whale sell-off.
Several on-chain and technical indicators are pointing towards the likelihood of Ether’s prices continuing to decrease. However, the extent of this downward movement may be limited due to the profit levels of existing holders and a decrease in its liquid supply.
An analysis of Ethereum’s on-chain activity reveals that the network value to transaction value (NVT) metric has indicated the possibility of the asset being overpriced since the beginning of 2023. The NVT signal from Glassnode compares the market price to the volume of on-chain transactions, with a higher NVT indicating that ETH could be trading at a premium. The chart from Glassnode shows that the NVT metric typically fluctuates between 80 and 30, but it surged to three-year highs of 120 at the start of 2023. To reset this metric, either a price pullback or an increase in Ethereum’s on-chain activity would be necessary.
Despite these indicators suggesting further downside, the profit levels of short and long-term holders imply that the decline in Ether’s price might be limited. When the net unrealized profit/loss (NUPL) metric of short-term holders is negative, indicating losses for short-term holders, Ether’s negative price action tends to reverse. This causes some weak hands to panic sell, allowing buyers to acquire coins at a lower price. Currently, the short-term NUPL ratio is close to neutral levels, but historical levels suggest that there is still room for some downside.
The realized profit/loss metric, which assesses the relative profitability of ETH transfers, also supports the notion of a potential pullback. On-chain analytics firm Santiment noted that the ratio of on-chain transaction volume in profit to loss is still favoring profit takes, albeit not by a significant margin. If the price drops further and threatens the $1,700-$1,800 level again, panic sells would likely ensue to justify buying at a lower price. Additionally, the NUPL ratio of long-term holders is currently ranging near peak levels seen in 2019 and early 2020, indicating a potential pullback.
The supply of ETH on exchanges has greatly decreased since the Shapella upgrade in April, while the amount staked for the validation of the proof-of-stake network has simultaneously increased. This decrease in liquid supply makes staked ETH less susceptible to selling compared to exchange-held ETH.
Considering the on-chain metrics and market indicators, it is evident that Ether might face selling pressure from short-term holders and panic selling from investors concerned about lower levels of activity in 2023. Nevertheless, the profit levels of short-term and long-term holders suggest that the slump may not extend significantly, and the price could find support above the $1,500 level.
Turning to the analysis of ETH/USD price, there are bearish risks in the short term, with a potential death cross looming in the weekly scale. The ETH/USD pair experienced a death cross between the 50 and 200-period moving averages (MA) on a weekly scale only once before in June 2019, leading to a 60% price drop.
Furthermore, on the daily chart, the ETH/USD pair is at risk of falling towards the 200-day MA at $1,761, which aligns with the support formed by the lower-highs from November 2022.
Examining the derivatives data for ETH, there hasn’t been any significant change in the open interest volume for futures contracts, reflecting the current lack of interest from traders in response to the lackluster price action.
Regarding options data from Deribit, contracts worth $1.1 billion are set to expire on July 28. The positioning in the options market indicates a bullish bias, with a concentration of call options between $1,900 and $2,400. As the expiration date approaches, the price is likely to remain subdued around the maximum pain level for options buyers, which stands at $1,850.
Based on the on-chain and market indicators, it appears that Ether’s negative selling pressure could persist for a few more weeks. However, there is potential for a strong influx of buyers, particularly at support levels around $1,700 and $1,500.
In conclusion, the current downward movement in Ether’s price is supported by various on-chain and technical indicators. However, the profit levels of existing holders and a decrease in liquid supply suggest that the extent of the decline may be limited. It is important for investors to conduct their own research and be aware of the risks involved in any investment or trading decision. This article is for informational purposes only and should not be considered as legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.