Ethereum price has been neutral and range-bound since the May 19 crash. Due to its consolidation, ETH and other altcoins appear to have developed a massive correlation with BTC. Such an increase in correlation indicates that investors are relying on the flagship cryptocurrency to perform and are hesitant about the rest.
While it does paint a bearish picture, it is ephemeral. Once the consolidation ends, Ethereum price will likely outperform BTC as it did in the recent bull run.
Ethereum price set up a demand zone as it rallied nearly 15% from $2,524 to $2,890 between June 1 and June 3. However, this support area was soon invalidated as sellers pushed ETH below it on June 8, converting it into a supply zone.
The recent attempt to breach past this resistance barrier failed as the Momentum Reversal Indicator (MRI) flashed a sell signal in the form of a red ‘one’ candlestick. This technical setup projects a one-to-four candlestick correction, suggesting that ETH is primed for a downtrend.
Therefore, if the selling activity continues, Ethereum price could revisit the 50% Fibonacci retracement level at $2,230 or $2,178.
Such a move will provide the buyers a chance to recuperate and come back stronger. The last time ETH tagged $2,178, it surged 32%. However, this time around, investors can expect a 60% bull rally to $3,500.
For this to happen, Ethereum price needs to successfully produce a decisive 4-hour candlestick close above the supply zone’s upper boundary at $2,668. Doing so will allow the smart contract token to rise toward the range high at $2,914 and then test the supply zone that extends from $3,438 to $3,569.
The reason why Ethereum price might witness a potential spike in buying pressure is in the ETH-BTC correlation chart. As seen below, over the past six months, ETH has experienced cycles where it gets highly correlated to BTC and then shatters this relationship.
From January 21 to February 2, the correlation dropped by 108% to -0.08 while ETH price rose by 33% from $1,200 to $1,600.
Similar drops in correlation were observed three times over the past six months, with the most significant decline seen between April 20 to May 15, during which time Ethereum price rallied by 60% from $2,500 to $4,000.
At the time of writing, the correlation to BTC is hovering around 0.77, sloping to the downside. Therefore, if a similar drop were to occur, Ethereum price will surely see a massive spike in buying pressure that would push ETH to outperform BTC.
Source: FXStreet