Ethereum price tumbled sharply during the weekend. It declined to a low of $3,490, which was the lowest level since October 14th. It was also about 30% below the highest level this year. Its market capitalization has tumbled to about $493 billion.
Why did ETH tumble?
There are several reasons why Ethereum price has dropped sharply in the past few days. The most important one is a statement by Jerome Powell. In a testimony before Congress last week, the Federal Reserve chair warned that the bank will accelerate the tightening process. This means that the bank will increase the pace of quantitative easing (QE) tapering.
In its November meeting, the Federal Reserve started initial stages of ending its $120 billion per month asset purchases program. It decided to slash the purchases by about $15 billion per month with the goal of ending the project in June next year.
Therefore, his statement meant that the bank will increase its tapering in the upcoming meeting. As such, there is a likelihood that the bank will end its QE program in the first quarter of 2022.
After ending QE, the bank will then start a period of gradual interest rate hikes. Like in the past rate hikes, the bank tends to make about 25 basis points increase.
As such, Bitcoin and Ethereum price tumbled because investors fear that tightening will lower the interest of risky assets. Indeed, the Nasdaq 100 index, which is also made up of high-risk tech stocks has also dropped by about 10% from its highest level this year.
ETH price also tumbled because of profit-taking as the year nears its end. Besides, many investors have already made substantial returns this year.
Another possible reason for the crash is the unwinding of leveraged derivatives. With prices falling, many holders of leveraged positions started exiting their positions.
Ethereum price prediction
In my previous ETH price prediction, I argued that the coin could rise and test the important resistance level at $5,000. This view has not worked out as I expected. However, my original thesis still stands and I expect that the price will soar to $5,000.
Turning to the daily chart, we see several things. First, the Ethereum price formed a double-top at about $4,800. Its chin was at about $4,000. A double-top pattern is usually a bearish signal. At the same time, the coin moved below the key support at $4,382, which was the highest level on May 13th.
It also declined below the ascending trendline shown in red. Therefore, I suspect that ETH will continue struggling for a while and then resume the bullish trend as investors buy the dip.
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