Ethereum is back in the red as it was rejected as a major area of resistance. The cryptocurrency is running out and is the second worst performer in the top ten list by market capitalization with a loss of 10% in the last 24 hours. Solana (SOL) takes first place with a 13% loss.
Related reading | TA: Ethereum Topside Bias weak if it continues to struggle below $1.2K
Overall market sentiment appears to be at an all-time low, but there is room for it to come into a capitulation, according to by Daniel Cheung, co-founder of Pangea Fund Management. The price of ETH can be subject to macroeconomic conditions.
Cheung claims that the second cryptocurrency by market capitalization is tied to traditional stocks, notably with the Nasdaq 100 index via the Invesco QQQ Exchange Traded Fund (ETF). In this sense, the cryptocurrency market has become vulnerable to stock price movements making it a “market system where everything is just one big big trade.”
The analysis claims that Ethereum could see a 40% drop from its current levels as the Nasdaq 100 “has plenty of room to go.” This indicator has seen a breakdown of only 30%, and historically it has fallen by as much as 45%.
Cheung believes that a possible upcoming crash in the Nasdaq 100 (tech stocks), and in Ethereum as a result, will be driven by a poor earnings season. This is one of the conditions that could force the price of ETH to crash below $1,000 to $500 for the first time since 2020.
The analysis claims that the traditional market misreads the US Federal Reserve (Fed). The corporation is trying to slow inflation, which is currently at a 40-year high according to the Consumer Price Index (CPI), by raising interest rates and emptying its balance sheet into the market.
Will Ethereum Follow US Stocks to the Downside?
The goal is to reduce consumer demand, and lower prices across global markets, in the hope that this will lower inflation. Market participants seem to underestimate the Federal Reserve, and therefore may be unprepared for the consequences, Cheung argues:
(…) There will likely be more iterations of lower earnings reviews to follow over the coming months especially given that this is a market system that very few investors have tested, which will send stocks lower and cryptocurrency track with more downside In the future.
In fact, the analysis argues that the United States could already be in a recession. This could strengthen the Federal Reserve to put more pressure on the market, which would have a worse impact on Ethereum and other cryptocurrencies.
That can be confirmed today with the GDP growth report to be published by the US financial entities. If this report points to an economic slowdown, adding more downside pressure and further impacting corporate earnings season, Cheung claims with an addition:
If the GDP print + CPI print + FOMC hold goes according to plan – we’ll probably be in triple digits again. However, the land mine that investors will have to contend with isn’t going away because the company’s second-quarter earnings of ’22 will be on the horizon.