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Ethereum Faces Possible Decline as Market Reaction to Fed Rate Cut Suggests Bearish Momentum

Ethereum Faces Possible Decline as Market Reaction to Fed Rate Cut Suggests Bearish Momentum

CoinotagCoinotag2024/12/20 09:44
By:Marisol Navaro
  • Ethereum faces a turbulent market following the Fed’s recent rate cut, with price fluctuations leading to increased bearish sentiment.

  • The sudden drop in Ethereum’s value to $3,624 indicates a potential shift in market dynamics, with user engagement metrics declining significantly.

  • According to industry analysts, Ethereum’s price-Daily Active Addresses divergence is at a concerning -98.28%, reflecting a steep decline in user interaction.

Ethereum’s price outlook dims as it drops to $3,624 following a Fed rate cut that disappointed traders, signaling potential future declines.

Fed Rate Cut Leaves Ethereum Traders Disappointed

The recent announcement from Federal Reserve Chair Jerome Powell regarding a 25 basis point (bps) interest rate cut did not produce the expected bullish rally for Ethereum (ETH). Instead, the cryptocurrency’s value tumbled by 4.50%, falling from $3,890 to a low of $3,624. This sudden shift has left investors questioning the potential for a price recovery as momentum shifts toward the bearish side.

Previous rates cut cycles had stimulated positive reactions in the crypto market; however, this time, Ethereum’s performance diverged significantly. On-chain analytics suggest that the attempted price rebound may not hold, raising red flags about the state of investor sentiment.

The price-Daily Active Addresses (DAA) divergence—which measures user engagement against price trends—has turned negative, indicating a worrying lack of participation. Positive DAA typically correlates with bullish price movements, while negative indicates waning interest, which could foreshadow further price declines.

Ethereum Faces Possible Decline as Market Reaction to Fed Rate Cut Suggests Bearish Momentum image 0

Source: Santiment

The negative DAA metric now stands at -98.28%, emphasizing falling user participation. If this trajectory continues, Ethereum may encounter deeper price challenges in the future. In addition to this, the Coinbase Premium Gap suggests a shift in market dynamics as price discrepancies arise between different platforms.

This metric, which captures the price disparity between the Coinbase ETH/USD and Binance pairings, provides insight into buying habits among U.S. investors. A greater premium on Coinbase often indicates bullish activity, but recent patterns suggest a decline.

Ethereum Faces Possible Decline as Market Reaction to Fed Rate Cut Suggests Bearish Momentum image 1

Source: CryptoQuant

A premium gap of -1.96 has emerged, further illustrating declining demand for Ethereum among U.S. investors post-Fed rate implications. When prices on exchanges like Coinbase lag behind those on Binance, it indicates weaker demand or increased selling pressure.

Technical Analysis: The Emergence of a Bearish Head-and-Shoulders Pattern

Alongside macroeconomic influences, Ethereum’s technical indicators have also turned bearish. The emergence of a head-and-shoulders pattern on Ethereum’s 4-hour chart suggests a potential trend reversal. This classic formation is characterized by an initial price rise (left shoulder), a peak (head), and a subsequent decline (right shoulder). A break below the neckline traditionally indicates a shift from bullish to bearish trends.

As the price has breached this crucial neckline with diminishing trading volumes, there’s increasing concern regarding the reliability of this formation. A lack of significant volume during a downward breakout might embolden traders to adopt bearish stances.

Ethereum Faces Possible Decline as Market Reaction to Fed Rate Cut Suggests Bearish Momentum image 2

Source: TradingView

If the current dynamics persist, a downward target of $3,501 seems plausible. However, if trading volume increases and buying interest strengthens, it could negate bearish predictions, offering the potential for a recovery phase where Ethereum might rally toward the $4,500 mark.

Conclusion

The recent Fed rate cut has left Ethereum in a precarious situation, as bearish signals emerge from technical patterns and user engagement metrics. With critical on-chain analytics reflecting significant declines in participation, investors must tread carefully. A recovery is conceivable, but it hinges significantly on increased buying support and the reversal of current bearish trends. Monitoring patterns closely will be essential for understanding Ethereum’s next moves.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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