Ethereum market struggles to hold onto gains following a period of increased regulation

After briefly surging to $2,718 on August 12, Ethereum’s price dropped by 5.7%, indicating that the market likely overreacted to the regulatory news, resulting in a short-lived and unsustainable spike.

Last week’s surge in Ethereum prices can be attributed to a series of significant regulatory breakthroughs. However, these news events failed to sustain the rally as investors became cautious about the market’s short-term prospects.

At a critical juncture near $2,700, Ethereum encountered intense selling activity that resulted in a dramatic drop in value and a return towards key support zones.

On-chain data signals increased selling pressure

Ethereum’s current slump corresponds with alarming trends visible in its on-chain metrics, marked notably by a surge in staking withdrawal activity.

A record-high of 122,000 ETH were removed from staking pools within a week’s time, exceeding the previous May benchmark. Furthermore, data analysis reveals a potential drop in morale among Ethereum stakers, which is somewhat puzzling given recent regulatory advancements.

These withdrawals, totaling approximately $521 million at an average price of $2,620, indicate increasing selling pressure as investors look to reduce their holdings. As Ethereum’s value drops further, data suggests an intensification of negative market trends.

A bearish pattern is visible in the Ichimoku Cloud indicator for ETH/USD, with the current market value of Ethereum trading beneath the cloud formation. It appears the decline may keep going, with the bears possibly aiming for a price floor at $2,500.

If Ethereum can’t maintain its price above $2,550, a larger market downturn is likely.

The Accumulation/Distribution Line (ADL) also shows a decline, reflecting greater selling pressure than buying interest, further supporting the bearish outlook. If Ethereum doesn’t maintain support above $2,550, it could lead to a wider sell-off, with the next key support level at $2,400.

Uncertainty surrounding the US economy, driven by rising interest rates and concerns about an impending recession, is likely to exacerbate bearish tendencies among investors. The overwhelming consensus among Polymarket users is that only 20% believe Ethereum will reach a new record high in the upcoming year.

The dismal forecast for Ether follows its inability to break through the $4,000 mark despite the introduction of US-based spot Ethereum ETFs. Most investors are placing their bets on Ether failing to surpass its previous record high by the end of 2024.

Ethereum price analysis: short-term outlook bearish

The Ethereum price had difficulty in stabilizing above $2600, potentially creating an opportunity for buyers to accumulate more capital and attempt a breakout towards $3000.

A potential move by ETH could counteract the impact of an impending bearish signal.

However, a death cross is a technical indicator that signals a potential shift in market sentiment, occurring when the shorter-term moving average falls below the longer-term moving average, which may lead to decreased investor confidence and increased selling activity.

As traders become increasingly aware of the impending death cross, they may choose to liquidate their positions, which could lead to a surge in selling pressure and ultimately result in Ethereum’s price falling to approximately $1,830.

Additionally, the presence of short-term resistance at $2,700 is a significant contributor to the prevailing bearish sentiment surrounding Ethereum’s price trajectory.

While the market remains uncertain, the short-term outlook for Ethereum appears bleak, despite favorable long-term regulatory news. With rising staking withdrawals and weakening momentum, Ethereum may face additional losses in the coming days.

However, if Ethereum can stabilize above key support levels, there is still a chance for a rebound. Should the price hold around $2,550 and demand pick up, Ethereum could attempt to retest the $2,600 resistance level. Breaking through this level might open the door for a recovery towards $2,718.