Ethereum (ETH) price is set to be deflationary after the Merge due to the EIP-1559 burning mechanism. However, the ETH price continues to dive below $1500 even before the Merge. The pressure is due to whales selling their ETH holdings, Fed Chair Jerome Powell’s rate hikes cues, and almost $2 billion in options expiry on September 30.
Ethereum will become a deflationary cryptocurrency after the Merge, with expectations of a 90% reduction in ETH issuance.
According todataby on-chain platform OKLink, over 2.6 million ETH have been burned since the implementation of the EIP-1559 in August last year. The total ETH burned until now is worth over $8.5 billion. Also, the annual inflation rate of Ethereum has fallen 50.77% since the implementation of EIP-1559.
Moreover, whales are selling their ETH holdings on expectations of the deflationary nature of Ethereum post-Merge. The non-exchange whales seem to be selling their Ethereum (ETH) holdings, whereas the ETH supply held by exchanges has increased in August. This means whales are bearish on the Ethereum (ETH) price after the Merge.
In fact, the deflationary Ethereum price post-Merge and $2 billion in options expiry on September 30 are pushing whales and traders to sell their ETH holdings.
On August 26, the crypto market saw two important events — the monthly options expiry and Fed Chair Jerome Powell’s hawkish Jackson Hole speech. As expected, Powell reaffirmed the Fed’s hawkish stance regarding rate hikes in the coming months. However, the monthly expiry was the primary reason behind the market-wide sell-off.
Ethereum funding rates reach highly negative value
As pointed out by an analyst in a CryptoQuantpost, the ETH funding rates are currently at their least value since July 2021. The “funding rate” is an indicator that measures the periodic fee that traders in the Ethereum futures market are exchanging between each other right now.
In a short squeeze, a swing up in the value of Ethereum while the market is overleveraged liquidates a large amount of shorts. These liquidations push the price up even higher, leading to more shorts being flushed down. In this way, liquidations cascade together during a squeeze.
Generally, highly positive funding rates can lead to long squeezes (since there are more longs in the market), while negative ones may result in shorts getting squeezed.
If the same trend as 14 months ago repeats this time as well, then it’s possible Ethereum could reverse using a short squeeze this time as well.
Ethereum started a major decline below the $1,500 zone
Ethereum failed to gain pace above the$1,660 and $1,675 resistance levels. It opened the doors for a move below the $1,550 and $1,500 support levels. Ether price even settled below the $1,500 level and the 100 hourly simple moving average. A low was formed near the $1,423 level and the price is now correcting losses.
An immediate resistance on the upside is near the $1,460 level. The first major resistance is now forming near the $1,480 level. It is near the 23.6% Fib retracement level of the recent decline from the $1,707 swing high to $1,423 low.
There is also a key bearish trend line forming with resistance near $1,480 on the hourly chart of ETH/USD. The next major resistance is near the $1,540 level and the100 hourly simple moving average.
Source: ETHUSD on TradingView.com
The 50% Fib retracement level of the recent decline from the $1,707 swing high to $1,423 low is also near the $1,565 level. A clear move above the $1,565 level might send the price towards $1,600 resistance. Any more gains may perhaps open the doors for a test of the $1,650 resistance.
Hourly MACD–The MACD for ETH/USD is now losing momentum in the bearish zone
Hourly RSI–The RSI for ETH/USD is now below the 50 level
Major Support Level – $1,425
Major Resistance Level – $1,480
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