According to the Bloomberg report on digital assets, another big fall in the U.S stock market could cause Ethereum’s native token Ether(ETH) to suffer a similar downturn.
Ethereum is at risk of global recession
Mike McGlone is the Bloomberg Intelligence senior commodity strategist. He predicts that U.S. equity will face downside pressure from the prospect of continued energy-price rises and their ability invoke a 2008-like global recession.
McGlone wrote that “The war in Ukraine” and “spiking crude” make for a powerful combination for a global depression. He also suggested that top cryptocurrency like Bitcoin and Ether might be subject to initial pressures.
WTI crude oil weekly chart. Source: TradingView
The correlations between U.S. stock indices and the top cryptocurrencies has only increased in the current global market turmoil and Ukraine-Russia conflict.
Ether’s correlation efficiency to tech-heavy Nasdaq100 100 rose to 0.93 just four days after Russia invaded Ukraine, but has since reverted to 0.67. A value of 1 indicates that the assets work perfectly together.
Daily price chart for ETH/USD, showing its correlation to Nasdaq 100. Source: TradingView
McGlone spotted Ether trading at the middle of a range that was defined by its 100-week exponentially moving average (100-day EMA, the red wave in chart below) at $6,000 and its 30-week EMA(the green wave) at near $2,000. McGlone expects substantial selling pressure at the interim resistance of $4,000.
Weekly price chart for ETH/USD. Source: Bloomberg Intelligence
The strategist said that Ethereum was “about the middle” of the range and stated that “if the stock markets take another leg lower, Ethereum will more likely to return to the lower end” at $2,000. He also added:
“If equities fall fast, Ethereum could repeat the last summer and revisit $1,700.”
Record lows in Ethereum TVL shares
According to the latest data, Ethereum is losing ground to cardano (ADA), Solana(SOL), Avalanche/AVAX and Terra (LUNA).
According to DeFi Llama data, the share of total value locked (TVL), on Ethereum, fell below 55%. This is its lowest record level, and it was 97% at the beginning of 2021.
Chain shares of total value Source: Defi Llama, Galaxy Digital Research
Messari researcher Tom Dunleavy notes that layer-one blockchains can be faster, cheaper, or offer a better reward structure than Ethereum.
He does however add that it would be difficult to completely overtake Ethereum and Ethereum Virtual Machine, a platform for creating decentralized apps (DApps), due to the first-mover advantage.
“Even rivals like Cardano and Solana have added or are adding EVM compatibility to their products (Terra is a notable exception). The network effects of the EVM have made it a common feature in many cases.
However, most of the “Ethereum killers”, except Terra, fared much worse in 2022, when they were confronted with energy crises, geopolitical conflicts and rate rise risks.
Solana and Cardano saw their prices drop by more than half a year, compared to Ether’s 30% decline. The Avalanche’s price fell by 37% during the same time.
Ethereum can it regain market share
However, not everyone believes that Ethereum’s TVL market share will continue to fall. GlobalBlock analyst Marcus Sotiriou predicts that Ethereum will regain control of its market share as it switches from the current proof-of work protocol to proof-of stake later in the year.
He explained to Business Insider that this was because it would dramatically lower the cost of transactions on Ethereum, which is the main drawback currently facing the network. Ethereum currently works with a surge-pricing system, which results in highly volatile transaction fees.
The network went through a “London hard fork” in August 2021 that used a key EIP-1559 protocol. The EIP-1559 permits the Ethereum protocol to pay gas fees. This means that Ether will be permanently out of circulation.
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McGlone explained that Bitcoin and Ethereum are still in their early adoption days. There is increasing demand vs declining supply, and associated price implications.”
“Our bias is why we complicate it — unless there’s something unexpected that stops the growth of the emerging technology, prices should go up.”
According to the strategist, Ether’s relationship with the U.S. stock markets will also decline due to “declining relative risks.”
The Nasdaq vs. Ethereum volatility Source: Bloomberg Intelligence
He stated that the relative risk of the emerging technology/asset is now closer to 3x. This is especially true if war increases stock market volatility and recession risks.
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