The journey of Ethereum’s native token, Ether (ETH), in 2023 has been marked by significant gains, with a rise of approximately 35% since the beginning of the year. However, despite its upward trajectory, Ethereum has encountered strong bearish rejections whenever it attempted to surpass the psychological resistance level of $2,000. This article delves into the three primary reasons why Ethereum has failed to decisively break the $2,000 barrier since May 2022.
Ethereum’s struggle to surpass $2,000 in 2023 shares similarities with its recovery phase in 2018-2019 when it faced resistance near $425. Just as the 0.236 Fibonacci retracement level acted as a hindrance during that period, the current recovery attempts of Ether encounter a similar obstacle near $2,000. The 0.236 Fib line continues to serve as a selling area, exerting downward pressure on the price of ETH.
The recent strength of the U.S. dollar has negatively impacted the demand for Ethereum, posing an additional challenge for it to surpass $2,000. Notably, the correlation between leading cryptocurrencies, including Ether, and the U.S. dollar index (DXY) has remained consistently negative in 2023. The prevailing negative correlation has dampened the upward momentum of Ethereum, limiting its ability to break through the $2,000 resistance level.
In 2023, Ethereum has notably underperformed Bitcoin, primarily due to the ongoing hype surrounding the introduction of a spot Bitcoin exchange-traded fund (ETF). The ETH/BTC pair has experienced a 20% decline year-to-date (YTD). Furthermore, Ethereum-linked investment funds have witnessed a reduction of $114 million in capital, contrasting with the $168 million inflow into Bitcoin-based funds during the same period. This divergence reflects a decreased availability of funds for Ethereum investors and potentially leads to lower yields.
The total-value-locked (TVL) across the Ethereum ecosystem has experienced a significant decline from 18.41 million ETH to 12.79 million ETH in 2023. This reduction in locked funds has resulted in lower yields for investors, as emphasized by recent warnings from JP Morgan analysts. Moreover, Ethereum’s gas fees, a measure of transaction costs, hit a yearly low on October 5. In addition to the TVL decline, Ethereum’s NFT volumes and unique active wallets have both dropped by 30% and 16.5% respectively over the past 30 days. Key metrics of popular Ethereum-based applications, including Uniswap V2, 1inch Network, and Lido, have all experienced a decline in user activity.
From a technical standpoint, Ethereum’s price may potentially rebound towards its 50-day exponential moving average (50-day EMA) around $1,665. However, a broader perspective reveals a bearish continuation pattern known as an ascending triangle. A break below the lower trendline of the triangle could result in a significant price drop equal to the pattern’s maximum height. In this scenario, ETH could reach support levels at $1,465 and $1,560 in October 2023. Alternatively, a break above the 50-day EMA might propel Ethereum’s price towards the upper trendline of the triangle, situated near $1,730 in October 2023, coinciding with the 200-day EMA.
Ethereum’s journey to overcome the $2,000 resistance level has been hindered by multiple challenges in 2023. The resemblance to historical patterns, the impact of a strengthening U.S. dollar, underperformance compared to Bitcoin, shrinking investment funds, declining TVL, and weakening metrics collectively contribute to Ethereum’s struggles. As the cryptocurrency market evolves, it will be interesting to observe how Ethereum navigates these obstacles and whether it can eventually break through the $2,000 barrier.