Dencun upgrade, anticipation of spot ETFs, and the broader market's expansion significantly strengthen Ethereum's optimistic outlook in February.
Ethereum's native token, Ether (ETH), has experienced a notable surge this week, climbing approximately 12%, including an upside move of 1.5% today. This upward trajectory has propelled Ether's value to $2,540, marking its highest price point since Jan. 19.
Several factors contribute to Ethereum's price movements, from technical upgrades and market sentiment to broader economic indicators. Let's delve into the reasons behind Ether's price increase in recent days.
Bullish market sentiment
Ether's gains today and this week come in tandem with broader crypto market trends. For instance, Bitcoin (BTC) comprises over 50% of the total crypto market capitalization and has grown by more than 15% week-to-date to around $48,600.
Crypto traders have turned bullish on two key factors. First, the newly approved Bitcoin exchange-traded funds (ETFs) have attracted $10 billion in capital in a month, signifying a growing institutional interest in crypto investment vehicles.
Still some after hours trading left but looks like BlackRock's $IBIT is the first ETF to trade more than Grayscale's $GBTC in a single day.
Total trading today was kind of a dud though at $924 million -- first day below $1 billion in dollar volume for the group since launch. pic.twitter.com/JAdFGEEjj6
— James Seyffart (@Jmseyff) February 8, 2024
Second, risk sentiment among traders has notably improved following Federal Reserve Chairman Jerome Powell's recent interview on 60 Minutes. In the discussion, Powell hinted at the possibility of reducing interest rates later in the year, sparking optimism in the crypto markets.
Crypto Market Update (5th February)
- January saw Bitcoin's highest monthly volume since September 2022
— Market Meditations (@MrktMeditations) February 5, 2024
- Crypto could benefit from anticipated Fed rate cuts in May, analyst says
- Crypto funds see $700 million of inflows as GBTC impact continues to abate
Ether and other top-ranking cryptocurrencies typically trade in sync with Bitcoin. As of Feb. 11, the daily correlation coefficient between ETH and BTC was 0.96, underscoring why Ether was lifted by Bitcoin's rising tide.
This strong statistical relationship highlights the interconnected nature of the cryptocurrency market and sheds light on Ether's significant rally in recent times, aligning closely with Bitcoin's performance trends.
Dencun upgrade
Ethereum is on the brink of several technological upgrades, most notably the upcoming Dencun upgrade. Scheduled for March 13, this upgrade aims to improve network efficiency and Layer-2 support, introducing key scalability enhancements.
Historically, Ether prices have reacted positively ahead of key network upgrades. For instance, the cryptocurrency jumped 100% ahead of the Merge upgrade in September 2022. Similarly, it swelled approximately 95% ahead of the London Hard Fork in August 2021.
These upgrades typically introduce improvements in scalability and security, making Ethereum more attractive to developers and users. This can drive speculative interest as investors anticipate increased adoption and demand for ETH.
Ethereum staking milestone
Recently, Ethereum achieved a significant feat, with 25% of the circulating supply now staked. Theoretically, this milestone shows that more traders are confident in the Ethereum blockchain's long-term viability.
Staking involves locking up Ether in the network to support operations and secure the blockchain, effectively reducing the amount of Ether available for trading. Consequently, if the demand for Ether continues to grow amid its reduced circulating supply, the price is likely to see a positive impact.
Ethereum ETF expectations
Ethereum's price rise today also took cues from growing euphoria about the potential approval its spot ETF applications.
For instance, in January, Standard Chartered predicted that the U.S. Securities and Exchange Commission (SEC) will likely approve all the pending spot Ethereum ETF applications, including those by BlackRock, Ark Invest, and Fidelity, by May 2024.
Related: ARK 21Shares refiles spot Ethereum ETF with cash creates, adds staking
Moreover, the firm anticipates that the approval could skyrocket the ETH price to as high as $4,000 if it follows Bitcoin's trajectory during its ETF approval process.
COMMENT: Traders are clinging to Standard Chartered's expected May 23rd $ETH ETF approval date.
However, the Bloomberg analysts @JSeyff and @EricBalchunas who so accurately predicted #Bitcoin ETF approval, are yet to wade in fully on the #Ethereum ETF debate... https://t.co/YSW1evmYrv
— BSCN (@BSCNews) February 9, 2024
ETH price technical bounce
Ether's recent price increase is part of a larger recovery that began on Jan. 25, following its touch on support confluence. This confluence comprise the lower boundary of a prevailing ascending broadening wedge pattern and ETH's 0.382 Fibonacci retracement line at around $2,270.
As of Feb. 11, ETH's price is eyeing a rise toward the 0.0 Fib retracement line at approximately $2,720, which is possible given that its daily relative strength index (RSI) is at 65.60 — not yet in the overbought territory (above 70).
The bearish case
Conversely, the bears will try to pull ETH/USD back from its current descending trendline resistance. This might result in a drop to the lower edge of its ascending broadening wedge pattern, aiming for the 50-day exponential moving average (50-day EMA; the red wave) situated near $2,340.
The potential for a bearish reversal also emerges near the horizontal resistance level at approximately $2,620, suggesting a possible decline towards the 0.236 Fib line at around $2,440.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
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