3 reasons why Ethereum price can drop below $3K by the end of 2021

Ether (ETH), the native currency of Ethereum, hit an all-time high of $4,867 in November, only to plummet over 20% a month later due to an increased profit-taking attitude.

Now that the ETH price has held $4,000 as a major support level, several technical and fundamental signs are pointing to more selloffs.

ETH price rising wedge

To begin with, Ether looks to have broken out of a “rising wedge,” a bearish reversal pattern formed when the price moves upward inside a range defined by two ascending — but converging — trendlines.

Simply said, when the Ether price approaches the Wedge’s apex point, it runs the risk of falling below the pattern’s lower trendline, which many technical chartists interpret as a sign that additional losses are on the way. When measured from the breakout point, their profit goal appears at a length equal to the maximum wedge height.

As a result, Ether’s downside objective is about $2,800, which is also close to its 50-week exponential moving average (50-week EMA).

Bearish divergence

Despite its capacity to withstand the tremendous selling forces experienced elsewhere in the cryptocurrency market in recent weeks, the Ether market looks to have a pessimistic future.

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For example, Bitcoin (BTC), the most valuable cryptocurrency by market capitalization, dropped 30% over a month after hitting a new high of $69,000 in early November, a far greater drop than Ether’s. As a result, several experts have referred to Ether as a “hedge” against the Bitcoin price decrease, even as the ETH/BTC ratio reached new highs in more than three years.

However, the fact that Ether’s recent price surge has coincided with a drop in its weekly relative strength index (RSI), showing a widening divergence between price and momentum, cannot be overlooked.

Fed “dot plot”

More bearish signals for Ether come ahead of the Federal Reserve’s two-day policy meeting beginning on December 14, when the central bank will debate how quickly it will need to reduce its $120 billion per month asset purchase programme in order to gain enough flexibility for rate rises next year.

The Fed said only last month that it will reduce its bond-buying by $15 billion per month, implying that the stimulus would be phased off by June 2022. Despite this, a slew of recent market indicators indicating a tighter labour market and steadily rising inflationary pressures persuaded Fed officials to conclude tapering “maybe a few months earlier.”

More bearish signals for Ether come ahead of the Federal Reserve’s two-day policy meeting beginning on December 14, when the central bank will debate how quickly it will need to reduce its $120 billion per month asset purchase programme in order to gain enough flexibility for rate rises next year.

The Fed said only last month that it will reduce its bond-buying by $15 billion per month, implying that the stimulus would be phased off by June 2022. Despite this, a slew of recent market indicators indicating a tighter labour market and steadily rising inflationary pressures persuaded Fed officials to conclude tapering “maybe a few months earlier.”

Market expectations have also shifted, with the majority of economists polled by the Financial Times expecting the stimulus to end by March 2022, and the majority of respondents favouring a rate hike in the second quarter.

After March 2020, a period of lax monetary policies had a key role in propelling the price of ETH to above 3,330 per cent. As a result, several analysts believe that the rising possibility of tapering will put a stop to the present surge, if not the bull market as a whole.

The Fed’s policy statement and summary of economic predictions (SEP) are expected to be updated this week, according to the markets. More central bank officials would change the “dot plot” in this way, favouring an earlier-than-expected rate rise in response to increasing inflation.