Price Analysis: Trouble For Ethereum, Bitcoin

These days there are some critical issues that could negatively affect the price of Ethereum and Bitcoin.

It is worth mentioning that for three weeks now, prices have appeared to be fairly stable, and periods that are relatively this long come to an end sooner or later.

The thing is that there is also a possible date when the trend could change.

12 April

In fact, on 12 April there will be the Shanghai update of Ethereum.

This is definitely an important update, if only because of the unlocking of staked ETH.

Ever since the new Beacon Chain was created, which allowed the transition from the old Proof-of-Work based blockchain to the new Proof-of-Stake based blockchain, it has been possible to put ETH in staking on this new blockchain.

However, it was decided that ETH staked on the new Beacon Chain would not be withdrawable until after a special update. That update is Shanghai, which will be implemented on 12 April.

The thing is that some of the more than 18 million ETH staked at that time were locked up when the price was lower than it is now, i.e., between late 2020 and early 2021.

These days the price of Ethereum hovers between $1,700 and $1,900, but back then it was well below $1,200. For instance, on 31 December 2020 it was reported to be just over $700, partly because the most recent big bull run had just begun.

It is therefore possible that those who have been staking ETH for more than two years may want to decide to sell them and cash in their profits as soon as they are able to do so, and the time from which they can do so is precisely 12 April.

Moreover, in these cases there is often another dynamic that produces similar results, as also already seen in mid-September 2022 with the move to PoS.

In jargon, such a dynamic is called “buy the rumors, sell the news,” and it often results in buying as soon as there is news of a possible major future event, such as the Shanghai update, and selling the moment the event occurs.

“Buy the rumors” tends to drive prices up, while “sell the news” tends to drive them down. For example, in mid-September of last year, the price fell below $1,300, after rising to nearly $1,800 just before the Merge.

As for the beginning of April 2023, the price rose from $1,760 on 3 April to $1,920 on 5 April, and then fell below $1,900. What is even more telling, however, is the ratio of Bitcoin‘s market capitalization to that of Ethereum, which fell from 2.52 on 3 April to 2.37 yesterday.

So if a “buy the rumors” is already underway, a “sell the news” is to be expected around the turn of 12 April.

The critical issues for the price of Bitcoin and Ethereum

However, it is not only the price of Ethereum that is going through a moment of possible weakness.

Even for Bitcoin there are prospects that point to possible declines.

The main issue is the 41,000 BTC that the US government authorities are about to put on the market after seizing it some time ago from Silk Road.

Although this is perhaps not a particularly good time to sell them, the US authorities certainly seem to have decided to get rid of them. This could significantly increase the selling pressure, not least because we are talking in total about more than $1 billion in Bitcoin.

But there is another, even more important point.

According to the Bloomberg Intelligence Crypto Outlook in April, crypto markets could experience another downward correction over the long term due to central bank monetary policies that are keeping liquidity tight in the markets.

In particular, Bloomberg Intelligence Senior Macro Strategist Mike McGlone reveals that money supply and commercial bank deposits in the US are declining at a pace not seen since 1959.

A thousand words in a chart – liquidity rug-pull:
It may be illogical to expect the #stockmarket, #crudeoil, #copper and #Bitcoin to sustain recent bounces with year-over-year measures of money supply and commercial bank deposits falling the most in our database since 1959. pic.twitter.com/O36SxGdK48

— Mike McGlone (@mikemcglone11) April 5, 2023

One of the causes of the reduction in commercial bank deposits are the Fed’s own so-called Reverse Repos, while the decline in the money supply is due to the reduction in the Fed’s balance sheet.

Regarding the latter, it is worth noting that in mid-March the balance sheet actually grew by as much as $400 billion, due to the support given to deposits on the accounts of failed banks, but as soon as the problem was solved, the trend returned to a downward trend.

Market fears beyond the price of Bitcoin and Ethereum

If the picture were still not bleak enough, we might add that fears of a possible recession are spreading in the traditional financial markets, and in the US in particular.

In fact, while to date there is no data revealing a recession in the making, there are some that instead suggest that by the end of the year, or next year, a recession may in fact be coming.

The biggest fear concerns the consequences of very high interest rates, since they are now at their highest in decades. Moreover, the Fed seems to be unwilling to reduce them, and indeed seems to want to raise them further.

If that is the case, the figure to keep an eye on is inflation, which is expected to be updated right after 12 April.

If it turns out that inflation did not fall much in March, the risk is that fear will turn into terror, since it would mean the certainty of further rate increases. However, it is worth mentioning that in March, for example, inflation in the Eurozone almost “collapsed,” so one would expect a significant drop in the US as well.

In light of all this, it is not surprising that sentiment in the markets appears slightly negative, nor that there is much anticipation for what might happen next week.