Published: June 22nd, 2022
The price of Ether (ETH), Ethereum’s native token, fell below USD 1,000 on Friday 18th June as the continuing crypto sell-off marched into the weekend.
ETH eventually hit USD 975, its lowest level since February 2021 and an 80 per cent drop in value from record highs reached in November 2021. The decline happened amid worries about US Fed’s 75bp rate hike. Jittery investors have since pushed both stock markets and cryptocurrencies into bearish territory.
‘The Fed has hardly even begun to raise interest rates and they have yet to sell anything on their balance sheet,’ said Nick Huntingdon, an analyst at data analytics firm Econometrics, warnings that ‘that strongly suggests that more downside is on the way.’
Crypto traders have been nervously following ETH’s trajectory over the last seven days, worried that a decisive break below USD 1,000 could trigger margin calls or liquidations of large leveraged bets. If that were to happen, ETH would face even more downside pressure.
Nerves began to fray when two crypto lending platforms, Celsius Network and Babel Finance, halted withdrawals due to worries about ‘undue market volatility’.
However, the real sweating started when crypto hedge fund Three Arrow Capital, which has USD 10 billion under management, was unable to beef-up collateral to cover its riskier bets. It’s been less than a month since Terra, a USD 40 billion stablecoin project collapsed. Some inventors are clearly feeling a dizzying sense of deju vu.
Those events coincided with two large-scale capital withdrawals from Ethereum’s blockchain ecosystem that severely diminished its benchmark total value locked (TVL) metric. The unwind happened in two parts. The first occurred across Ethereum's decentralized finance (DeFi) projects in May, when TVL fell by USD 93 billion after the Terra collapse. This month (June 2022) has seen another USD 30 billion in withdrawals.
‘The deleveraging underway on Ethereum is observably painful, with characteristics that make it look like a financial crisis in miniature,’ said on-chain analytics platform Glassnode in an analyst note. ‘One only hopes that with the pain comes an opportunity to rid the network of excessive leverage and make space for a less risky rebuild on the other side.’
Glassnode’s analysts believe a more hawkish Fed and the ongoing implosion in the DeFi market point to extended bearish moves for ETH.
From a technical perspective, Ether’s price has to lift above the psychologically significant USD 1,000 level to regain support. Otherwise, it might break downside and plumb depths as low as USD 840 as its next target. That’s the level that provided resistance back in February 2018, before collapsing into a 90 per cent decline that left it hovering around USD 80 eight months later.
Meanwhile, ETH/USD could also fall to as low as USD 420 if ETH’s correction starts to mimic the 2018 bear cycle. It's worth noting however that USD 420 also proved instrumental as support in July-August 2018, and resistance in September-October 2020.
While the past few weeks have seen most cryptocurrencies suffer losses of more than 90 per cent from their all-time highs (ATH’s), a stubborn group of holdouts has managed to fight the downtrend.
According to data released by CoinGecko this week, the current crypto bear market has hammered 70 out of the top 100 tokens. However, the coins with the biggest market capitalizations are suffering least. Looking at the top ten, nine have fallen by less than 90 per cent. Bitcoin (BTC) is down 70.2 per cent from its November 2021 high of USD 69,000. ETH is in second place, down 77 per cent from its high of USD 4,876.
Others in the top table include Cardano’s ADA, Binance’s BNB, Polkadot’s DOT, and Solana’s SOL which are all down between 67 and 86 per cent. The average fall from grace for the top ten coins is still a whopping 78 per cent. Extend your view to the top 20 coins and the average drop from ATH is 81.2 per cent.
Amid all the carnage of the last few weeks, one highlight has been tokens issued by crypto exchanges. Cumulatively they’ve posted an average drop in price of around 68 per cent.
The top performer on that list is Unus Sed Leo (LEO), which has only shed 38.8 per cent of its value, and even attracted aggressive buying (at lower levels) on 13th June. LEO is the Bitfinex exchange Ethereum-based utility token, often used by crypto traders to reduce fees.
Near the bottom of the table, CoinFLEX exchange’s FLEX token is the 82nd biggest crypto by market cap. It's been mostly immune to the run on Ethereum network assets, dipping just 38.5 per cent from its ATH. Like LEO, FLEX is also used to reduce trading fees.
Trading platform KuCoin has seen its KCS token suffer a 61.4 per cent drop from its all-time high. Again, KCS is used by traders to reduce fees on the KuCoin exchange. CoinGecko analysts think it might be vulnerable to a further dip that would bring its losses to more than 60 per cent under its ATH.
Many cryptocurrencies have taken the biggest hit to their price in the last seven days as total cryptocurrency market capitalization dropped by 25 per cent, sliding from USD 1.3 trillion to USD 995 billion. BTC also shed close to 35 per cent of its value in the same period, dropping from USD 30,500 to USD 20,800 at time of writing.
The Federal Reserve’s announced 75-basis-point hike in interest rates could roil crypto markets further in the coming days.
Stablecoins have also suffered recent falls, despite their supposed stability. Many have wobbled by between 10 and 30 per cent at various points since 2018, including USDC, BUSD, USDT, Pax Dollar and others.