The market value of Ethereum’s native token Ether, (ETH), could double in the next few months thanks to a combination of fundamental and technical indicators.
The Ether price surged more than 9 percent Friday to reach nearly $3,300. This was the highest level in almost ten days. The price gains were mainly due to a rebound in all the major cryptocurrencies, including Bitcoin (BTC), that gained 9.5% to reach $48,000, its highest level in 10 consecutive days.
The Ether-Bitcoin correlation to rising U.S. inflation
Friday’s boom in crypto markets coincided with the publication of the U.S. Commerce Department report on consumer spending.
According to the data, the U.S. core personal expenditures price index (the Federal Reserve’s preferred measure for inflation) rose 0.3% in August, and was 3.6% higher year-over-year. The core inflation reached its highest level in 30 years.
Bitcoin is often seen as a hedge against inflation by speculators, which is why the benchmark cryptocurrency’s response to rising consumer prices in the U.S. has been so successful.
According to CryptoWatch data, Ether’s 30-day average relationship with Bitcoin is near 0.89. This prompted ETH almost to follow BTC in its movements.
BTC/USD versus USD/ETH daily price chart. Source: TradingView.com
The University of Michigan conducted a survey between August 25 and September 27 that found that longer-term inflation expectations among U.S. customers rose to 3%. This is the highest level in a decade.
This result was in direct contradiction to the views of Jerome Powell, Chairman Federal Reserve. He dismissed rising inflation for months and then admitted during a Senate hearing that higher consumer prices may remain at least until next year.
Inflationary pressures made it possible for crypto bulls to pitch Bitcoin as an ultimate hedge. MicroStrategy CEO Michael Saylor suggested that corporations convert their cash-based Treasury into Bitcoin.
Cash and credit can become crumbling liabilities in the face of inflation. To turn your liabilities into assets, convert your balance sheet to #bitcoin https://t.co/kzCEPDA4S2
— Michael Saylor (@michael_saylor) October 1, 2021
MicroStrategy currently holds approximately 0.5% of total Bitcoin supply, which is worth more than $6 billion.
Ethereum received a network upgrade hard fork on Aug. 5. This further increased the bullish outlook for Ether owing to the supply-demand law.
The upgrade was dubbed London Hard Fork and introduced an improvement protocol called EIP-1559 that began burning a portion Ethereum’s network fees, known as Base Fee. As per WatchTheBurn.com, EIP-1559 has activated and removed 410,404 Ethereum ($1.32 Billion) from active supply.
Ethereum is also planning to change its consensus mechanism from Proof-of-Work to Proof-of-Stake. It has also launched a stake pool, which allows users to earn rewards as well as grow their Ethereum holdings. Users can lock 32 ETH into an official PoS smart contract for a specified period.
The amount of ETH deposited into the so-called Ethereum 2.0 staking contracts has risen from approximately 11,500 in November 2020, to 7.82 million ETH today. However, 7.82 million ETH have been temporarily removed from circulation by the transition.
Total ETH stakes for Ethereum 2.0 smart contract. Source: CryptoQuant
However, total Ether tokens across all crypto exchanges has fallen to record lows. CryptoQuant data shows that the exchanges hold only 18.1 million Ethereum, compared to 23.73 millions ETH one year ago.
All crypto exchanges have ether reserves Source: CryptoQuant
The falling ETH reserves indicate that traders may prefer to keep their Ether tokens rather than selling them for other assets. It creates a supply shortage for investors who want to enter the Ethereum markets, making ETH more valuable.
EIP 1559 #ethereum supply is expected to peak at 120 million. After that, it will continue to drop and then go down. Meanwhile, demand will rise. It is likely that the number will rise.
Lark Davis (@TheCryptoLark), September 24, 2021
Cup and handle
The Ether price is bullish because it has both lower supply and greater demand. A cup and handle pattern seen on Ether’s longer-timeframe charts provides further evidence of an upside breakout.
Related: Ethereum bears hope to score at Friday’s $340M weekly ETH option expiry
The Cup and Handle pattern is a bullish continuation pattern. It consists of a rounding bottom and an ascending channel setup as illustrated in the chart below. The profit target of the structure is usually at the same length as its maximum height.
Daily price chart for ETH/USD featuring a handle and cup pattern. Source: TradingView.com
Given that the Cup’s resistance level stands at $4,000, a breakout there would send the ETH price above $6,000, nearly twice its current rate.
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