Ethereum (ETH) price risks a drop to $660 following the H&S breakout

NEW DELHI (CoinChapter.com) — Ether (ETH) prices, the native token of the Ethereum blockchain, slumped drastically since Friday, falling nearly 35% from Jun 10’s high of $1,804.3 to reach an intraday low of $1,180 on Monday.

The downtrend resulted in Ether prices breaking below the neckline of the head and shoulders pattern. In detail, the pattern appears as three peaks formed above a baseline (neckline), where two outside peaks are close in height, and the middle is the highest.

Traders consider the H&S pattern a reliable trend reversal indicator, with prices reaching the projected target nearly 85% of the time. The price target for a breakout below the neckline equals the distance between the head and the neckline.

Ether prices could fall to $660, a 47% drop from current prices. ETH prices would reach the three-digit range for the first time since Jan 2021. Meanwhile, trend-based momentum indicator MACD charted a bearish crossover for ETH on Sunday.

A bearish crossover occurs when the MACD line (difference of 12-day and 26-day EMA) moves below the MACD signal line (9-day EMA of MACD). As a result, traders usually consider the chart pattern as a sell signal, resulting in the cryptocurrency prices facing a further downtrend.

Also Read: Ethereum-related funds are adding ETH to their holdings in 2022.

A sell-off could see ETH prices fall to support near $1,145. A breach below immediate support could result in ETH prices falling to $990, which previously supported Ether price action during Jan 2021, and between Jan 7, 2018, and Feb 2, 2018. Finally, a marketwide sell-off could push ETH prices to $850.

Oversol RSI

ETH’s relative strength index is currently oversold for its daily and weekly charts. The RSI measures the magnitude of recent price changes to analyze overbought or oversold conditions. When the RSI goes below 30, the asset enters the oversold region.

An oversold RSI indicates a bullish trend reversal is on the cards. Moreover, the last time ETH’s weekly RSI was oversold Dec 2018, Ether prices started a rally that saw prices jump more than 347%. Bulls might try to start an uptrend, banking on the oversold levels.

An uptrend might see ETH prices rise to immediate resistance near $1,400. Moving above immediate resistance might help ETH target resistance from its 20-day exponential moving average (20-day EMA, red wave) near $1,700.

Finally, a sustained uptrend could see ETH prices rise to resistance from its 50-day EMA (yellow wave) near $2,080 before corrections pare gains.

“Fees Most Important Driver Of Ethereum Economics Post Merge”

Per a Twitter analyst Fed Surfer, transaction fees would drive Ethereum’s economics after the upcoming “merge.” The Merge refers to Ethereum’s upcoming migration to the Proof-of-Stake (PoS) consensus mechanism.

As per the analyst, the two key factors for ETH economics after the Merge would be the token issuance to validators. Secondly, fees generated by the Ethereum network would play an important role. The EIP-1559 included in the Merge would ensure only 30% of the fees would go to validators.

Also Read: Ethereum (ETH) risks 35% drop on eerie bearish triangle prospects — could “Merge” save the day?

EIP-1559 introduced a burn mechanism for ETH tokens. The update would burn nearly 70% of the network’s fees, making ETH deflationary. Moreover, the network would reduce the amount of ETH tokens validators receive.

Other interesting observations:
– Including the burn rate in the return to stakers, the "real" return to staking is closer to 10% at merge.
– Implied P/E at merge is 10x for stakers, a multiple many would consider extremely cheap (hat tip to @NorthRockLP for the framework).

— Fed Surfer 💵 (@808_Investor) June 3, 2022

As a result, the analyst calculated that ETH stakers would earn nearly 9% returns at the Merge, and ETH would be 0.7% deflationary. The analyst also asserted that Ether would be deflationary because of low issuance, even at low levels of on-chain activity.

At the time of writing, ETH was trading at $1,256, down 12.69% on the day.