ETH Falls To $1,400s, Battered By Hot US Inflation & Difficulty Bomb Delay
The second half of the week was an ugly one for Ethereum, with the world’s second-largest cryptocurrency shedding upwards of $38 billion in market capitalization in the last three days as it dropped around 18% from around $1,800 per token to current levels in the mid-$1,400s.
The sell-off got kicking on Friday as hotter than expected US Consumer Price Inflation data sparked fears about aggressive Fed tightening, weighing on risk assets (like stocks and crypto) across the board.
After dropping roughly 7.0% on Friday, Ethereum fell another nearly 8.0% on Saturday, weighed by the news broke that core developers had delayed the implementation of the so-called “difficulty bomb”, thus sparking fears that the blockchain’s transition from Proof-of-Work (PoW) to the more energy-efficient Proof-of-Stake (PoS) will be delayed.
The difficulty bomb is a special piece of code that has always been embedded within in ethereum that will gradually kick PoW miners off of the network as it transitions towards PoS.
Developers reportedly opted to delay the difficulty bomb after finding various bugs that need fixing during a test of the “Merge” (i.e. the transition to PoS) on ethereum’s main testnet blockchain (called Ropsten).
As of Sunday, ETH/USD is trading in the $1,460s, its lowest level since March 2021, and looks on course to close out the week nearly 19% lower, having broken key support in the $1700s in the form of earlier weekly lows and a mid-2021 triple bottom. For now, support in the form of the 2018 highs around $1,420 is holding firm.
But if the Fed is to give off hawkish vibes in its policy announcement next Wednesday, triggering further risk-off in crypto markets, ETH/USD is at risk of sliding towards the next key area of support in the $1,300 area.
DOT Hits One-Month Lows Under $8.0, Eyes Annual Lows
Polkadot hit fresh one-month lows on Sunday, falling into the mid-$7.0s and eyeing a test of annual lows just under the $7.0 level. DOT/USD was last trading lower by about 17.5% on the week, as the downturn in broader macro and crypto risk appetite on hot US inflation and ethereum woes weighs heavily across altcoins.
The technicals continue to look ugly for DOT/USD in the medium term. The cryptocurrency has been in a near-constant downtrend since early April, during which time its 21-Day Moving Average has acted as a consistent level of resistance.
Most recently, the pair was in a descending triangle that it broke to the downside over the weekend. The bottom of that descending triangle (the 27 May low around $8.50) will likely now act as a solid area of resistance.
Any such rebounds to the mid-$8.0s will likely be used as an opportunity for the bears to reload on short positions, with these bears likely targetting a near-term test of annual lows just under $7.0.
ADA Falls Back Below 21DMA
After a period of relative outperformance in recent weeks compared to most other cryptocurrencies which some have attributed to Fear Of Missing Out ahead of the blockchain’s upcoming Vasil hardfork which should deliver notable upgrades to its capabilities, Cardano fell back under its 21DMA at $0.55 for the first time since late May over the weekend.
ADA/USD was last trading just above $0.50 per token, down more than 20% versus earlier weekly highs near $0.67 and down just under 9.0% on the week. The recent worsening of sentiment is a function of downside in other areas of the crypto space, with sentiment having taken a turn for the worse following Friday’s US inflation numbers.
ADA/USD is eyeing a test of its late-May lows just under $0.45. Whilst the cryptocurrency remains well within its $0.45-$0.70ish ranges of recent weeks, technicians might view its recent rejection of the 50DMA as a bearish sign for the weeks ahead.
SOL Hits Fresh Annual Lows, Eyes Break Below $30
Unsurprisingly, the downturn in crypto risk appetite over the last three days has weighed heavily on Solana, which has fallen over 18% since Thursday’s close near $40 per token. SOL/USD printed as low as $31 on Sunday, breaking out to fresh annual lows in the process, but has since recovered to the $32.50 area.
Technicians will be eyeing resistance in the $35-36 area, a retest of which might attract any bears eyeing a move lower to the mid-2021 lows in the $20-21 area to reload on shorts. Retracements towards the 21DMA going all the way back to early April have also consistently proven good areas to sell, so traders will be watching any rally back above $40 (with the 21DMA at $41.62).