Ethereum price has crashed to the lowest level since early this month. ETH is trading at $3,200, which is 26.8% below its all-time high of $4,380. It is not alone. Indeed, all cryptocurrencies like Bitcoin, Ripple, and Binance Coin have dropped by more than 5% while the combined market cap of the currencies has declined to $1.9 trillion.
Monetary policy conditions
Ethereum price is dropping because of the fears of high interest rates as inflation rises. Last week, data by the United States showed that consumer prices surged by more than 4% while producer prices rose by more than 6%. This was the fastest growth since 2008 and 2011, respectively.
It’s easy to see why considering that the prices of everything have surged. Lumber has risen by more than 300% in the past 12 months, gasoline has more than doubled while copper is at an all-time high.
The labor market is also tightening. While official numbers show that the unemployment rate rose in April, flash numbers show otherwise. For one, many companies in the retail and hospitality sector have started to increase wages in a bid to attract workers.
The implication of all this is that the Fed could start tightening earlier than expected. As such, the logic is that if cryptocurrency prices surged because of Fed easing, they will start falling if the bank tightens.
Bitcoin and Ethereum prices are also falling because of the ongoing bubble-like market conditions. A bubble is a situation where investors are buying everything without considering their intrinsic value. It is easy to see why this in the crypto market.
For example, we have seen meme coins like Dogecoin and Shiba Inu attract billions of valuations not because of their fundamental value but because traders want to catch the next big thing. Therefore, investors are worried that this bubble will burst when the Fed starts tightening. Indeed, this could be the reason why Elon Musk is hinting that Tesla has sold its Bitcoin holdings.
The third reason why Bitcoin and ETH prices are falling is because of Tether. For starters, Tether is the biggest stablecoin in the world with a market cap of more than $58 billion. The currency is popular among traders because of the fact that it is backed by fiat currencies. However, recent data show that only a small part of the stablecoin is backed by cash, as shown below.
In a note, Frances Coppola said:
“Tether’s reserves analysis published today confirms what many people have said for a long time, namely that Tether has almost no cash dollars on its balance sheet. Actual “cash” is 3.87% of what Tether describes as “cash and cash equivalents, which in turn make up only 75% of its total assets.”
This is not the first time that Tether has been accused of market manipulation. Early this year, Research Affiliates warned that Bitcoin prices were being manipulated by Tether. The report said:
“Perhaps BTC is just a bubble driven by a frenzy of retail, and some institutional, money eager to get a piece of the action. Alternatively, and far likelier in my opinion, is that this ‘bubble’ is more fraud than frenzy.”
Ethereum price prediction
Regular readers know that I am generally bullish on Ethereum prices. However, as a trader, I also believe in changing views when conditions change and I am slowly turning bearish. Looking at the weekly chart, we see that the ETH price has moved below the 23.6% Fibonacci retracement level.
We see that it attempted to move below this level last week but it pulled back. Today, it has moved below this level more forcefully. Therefore, in the near term, I can’t rule out a situation where the prices crashes to the 50% retracement at $2,237, which is 32% below the current level.