Ethereum sold off again on Tuesday, dropping like a rock right from the open to fall from $1,800 all the way down to under $1,400 before finding some semblance of support, eventually closing the daily candle just north of $1,500. This is a strongly bearish candle that I believe is more of a mean reversion given ETH's general uptrend and bullish in all timeframes, but ETH will need to find support somewhere soon to maintain the general uptrend.
(February 23, 2021 10:30 PM EST)
Outlook:
Ethereum fell sharply on Tuesday, dropping below any tentative support and forming a long wick down to the $1,400 level which should offer a ton of buying pressure, as it did today. As I mentioned in today's Bitcoin analysis, I believe ETH is executing another standard 30% bull market correction as tends to happen during crypto bull market in which gains are digested and leveraged longs are trimmed. Retail investors are notorious for being reckless traders and overleveraging without proper risk management, so it only makes sense that this selloff washes out a lot of weak hands and leveraged positions that have no business being in crypto.
Going forward, I think ETH will probably put in a major bottom here around $1,400 or so, equating to a roughly 61.8% retracement of this most recent W1 up from ~$1,050 to $2,050 which puts ETH around $1,300 - $1,500, which we've already seen. It's possible the low is already in but we'll have to wait and see how the rest of the week plays out. If the buyers step in and ETH appears to stabilize in price, then it's possible the bottom is in. If we continue to see rallies get sold into and lower lows, then we may have yet to put in 'the' local bottom.
That being said, I'm looking for a W2 termination sometime in the next couple weeks or so which will set up a W3 (possible W3 of W3) higher to new highs and well into the four-figures which ETH has struggled to make much headway in thus far in the bull cycle.
Fundamentals:
ETH's fundamentals remain unchanged. ETH's demand continues to increase by the day with institutional investors and funds adding allocations to ETH, as well as the retail herd which is, of course, very bullish on ETH, more than ever before. With EIP-1559 in the near-term horizon which will burn ETH collected by transaction fees and effectively make ETH near-deflationary and ETH 2.0's Phase 1 set to roll out in late-2021, ETH's fundamentals are as strong as ever, and based on this recent price action I would argue that ETH is strongly undervalued.
ETH/BTC:
As you can see in the ETH/BTC chart below, ETH continues to bleed in satoshis, crashing down to the 200 Day EMA level which is its final support level. It needs to hold this level, else the trap doors will open and ETH could tumble further. I'm not of the opinion this will happen, as I believe Bitcoin and ETH are both close to major support and local bottoms, so I think downsides are somewhat limited from here.
Historically, this ETH/BTC level is very low for ETH and typically offers excellent value for ETH and a favorable risk-reward ratio as an investment opportunity, as we are in a clear crypto bull market. ETH's historical low against BTC is in the mid-0.02s, so its a 4-6x higher from here or a 25% drop from here - which offers a better Risk:Reward?
Current Strategy:
Buy the dips (I did today!) and earn ETH, especially at these bargain prices.
Support:
Local support around the $1,500 - $1,400 level, which was the previous ATH and an area of major resistance for some time before ETH eventually broke out. This is further supported by the rising 50 Day EMA just below around ~$1,340.
Resistance:
Immediate-term $2,000, then $2,500, then $3,000.
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