Market Analysis

Ethereum price tumbles to $915, but traders are bullish for 4 key reasons

The past week has been an emotional rollercoaster for Ether (ETH) traders, as there were seven four-hour candles of a 10% or larger price movement. 

Furthermore, the most recent 30% drop to $920 triggered $550 million in liquidations on long futures contracts. To complicate things even further, this current price correction is taking place just four weeks ahead of the launch of CME’s ETH futures.

ETH/USD 4-hour chart. Source: TradingView

It’s possible that even the most bullish Ether traders did not expect an 85% rally to occur in just eight days. During that short timespan, the top-ranked altcoin blasted through the $800 resistance and quickly climbed to $1,350, which is only 5% below its all-time high.

In 2017, Ether’s swift climb to $1,400 was primarily backed by the initial coin offering boom, but this time a different set of factors drove Ether’s price higher. Many DeFi platforms rely on the Ethereum network, and Ether is the most common asset used as the gateway to these platforms. Aside from increased activity on the Ethereum network, the increased use has also resulted in high transaction fees.

At the moment, there is not much negative news flow coming from the Ethereum camp or major media outlets. Data shows that Ether’s fundamentals are still strong, and investors are content to wait for further Eth2 network developments.

To understand whether the recent crash reflects a potential local top, investors should gauge the network use metrics on the Ethereum network. A great place to start is analyzing transactions and transfer value.

ETH/USD price vs. transactions and transfers. Source: DigitalAssetsData

The chart above shows the indicator spiking above $8 billion in daily transactions, a 200% increase compared with the previous month’s $2.6 billion average. This noticeable hike in transaction and transfer value signals strength and suggests that Ether’s price is sustainable above $1,000.

Exchange withdrawals point to whale accumulation

Increasing withdrawals from exchanges can be caused by multiple factors, including staking, yield farming and buyers sending coins to cold storage. Usually, a steady flow of net deposits indicates a willingness to sell in the shortterm. On the other hand, net withdrawals are generally related to periods of whale accumulation.

ETH/USD price (right) vs. exchanges net ETH flow (left). Source: CryptoQuant

From Jan. 4 to Jan. 11, exchanges faced net withdrawals of 460,000 ETH. This move signals a potential accumulation from whales either transferring to cold wallets or putting these coins into the DeFi ecosystem.

This move contradicts the usual expectation that large holders rush to deposit on exchanges as Ether approaches its all-time high. Apart from a 100,000 ETH net deposit on Jan. 10, the net withdrawal trend has prevailed since December 2020.