Ethereum price relief rally seems to be ending. ETH is trading at $2,570, which is 38% above the lowest level yesterday. But it is also 15% below its highest level yesterday. Its market capitalization has declined to more than $307 billion. Other digital currencies like Bitcoin, Polygon, Bitcoin Cash, and Ripple have also fallen by double digits in the past 24 hours.
Relief rallies tend to be shaky
As you recall, the price of Ethereum and other cryptocurrencies crashed on Wednesday after China warned its financial services companies. There were also worries about high interest rates after the relatively positive economic data from the United States.
This decline pushed the price of ETH down to $1,850, 57% below its all-time high. On Thursday, the currency bounced back as investors rushed to buy the dips. However, as I warned my Twitter followers yesterday, relief rallies tend to end badly.
For starters, a relief rally is a situation where an asset’s price tends to rally sharply after collapsing. This happens because of the psychological nature of the financial market. When the price falls, many novice traders tend to buy the dip hoping that they will profit from the dip.
This, in turn, leads to a sharp rally that attracts more buyers. As the price rallies, many buyers start exiting, with the goal of taking the profit they have made. Consider the following statement from Investopedia:
“A relief rally does not necessarily spell the end of a secular decline, however. Both the aftermath of the dotcom bubble and the 2007–2008 financial crisis saw several relief rallies for stocks, only to see renewed fears push market prices lower again.”
What next for Ethereum prices?
Turning to the daily chart below, we see that Ethereum price has started to dip. The currency remains slightly below the 25-day and 50-day weighted moving average (WMA). It also seems to be attempting to retest the lowest level on Wednesday evening. Most importantly, the price has moved from above the 61.8% Fibonacci retracement level and is now slightly above the 50% retracement level.
Therefore, the next major signal will emerge if the price drops below the 50% Fib level at $2,300. If this happens, it will attract more sellers, who will start targeting this week’s low at $1,857. A drop below that level will then open the possibility of it falling to the 78.6% retracement level at $1,114, which is 55% below the current level.
On the other hand, a move above the overnight high of $3,000 will mean that there are more bulls in the market. Below is a Tweet I sent during Wednesday’s meltdown.