Ethereum’s 20% Drop Fails to Dampen Investor Optimism

The price of Ether (ETH) experienced a significant increase of 20% from March 3 to March 13, reaching a peak near $4,100. It then faced a double top formation and underwent a 20% correction, testing the $3,200 support on March 19. Analysts believe that the initial rally was fueled by highly leveraged long positions. The bullish momentum of Ether faded due to the liquidation of $375 million in ETH futures, but it’s uncertain if this is enough to stop the correction and potentially start a bull run again.

During the market crash, Ether’s downturn was more severe compared to the overall cryptocurrency market. While the market’s capitalization reached a peak of $2.77 trillion on March 14, it stabilized at around $2.35 trillion, reflecting a 15.5% drop over five days. Ether’s performance suffered in comparison to Bitcoin’s 12% weekly drop, Solana’s 21% increase, and Binance Coin’s slight 2% decrease during the same period. Interestingly, Solana faced challenges handling the surge in activity, particularly driven by the interest in new meme coins.

On March 13, the Ethereum network underwent a significant upgrade, coinciding with Ether’s price peak for the cycle. This upgrade reduced transaction fees for layer-2 networks and improved the network’s data-handling capabilities. The upgrade was considered successful, as it led to a surge in activity on layer-2 solutions and significantly increased Ethereum’s scalability. Despite these upgrades, the gas fees on the base layer of Ethereum remained high, which further highlighted the appeal of alternative platforms like Solana and Avalanche.

Despite the price crash, futures for Ether indicate moderate bullishness. The correction led to the ETH perpetual contract funding rate approaching zero, suggesting a balance between long positions and shorts in the market. The funding rate decreased to its lowest level in three weeks, in contrast to the previous week where buyers faced significant fees to keep their positions open. This shift indicates a cooling off from the previous buying enthusiasm. Ether’s futures have been trading at a 22% premium, which is unusually high and indicates excessive demand for long positions, possibly driven by optimism regarding ETF decisions on Ethereum.

While Ether experienced a price correction, there are signs of market equilibrium and optimism among professional traders. The ongoing developments and upgrades in the Ethereum network will continue to shape the future of Ether’s price and its position in the broader cryptocurrency market.