Ethereum ($ETH ) has experienced a sharp decline in price this year, largely due to strong resistance encountered at the $4,000 level in December. The cryptocurrency has dropped nearly 20% from its December high, in line with a broader market pullback seen across Bitcoin and altcoins.
Outflows from Ethereum ETFs Contribute to Downward Pressure
A significant factor in Ethereum’s decline has been the outflows from Ethereum spot exchange-traded funds (ETFs). On Wednesday, Ethereum ETFs saw net outflows of $159 million, following $86 million the previous day. Despite this, Ethereum ETFs have still attracted a cumulative $2.5 billion in net inflows since their approval in 2024, which highlights investor confidence in the long-term potential of Ethereum.
Exchange Balances Indicate Potential Selling Pressure
Ethereum’s price slump coincides with an increase in exchange balances. According to data from CoinGlass, the amount of Ethereum held on exchanges rose to 15.85 million ETH on January 9, up from 15.3 million ETH on December 30. This increase suggests that investors might be liquidating their holdings, adding to the downward price momentum.
Macroeconomic Factors Weigh on Ethereum's Performance
From a macroeconomic standpoint, Ethereum has also been impacted by rising U.S. bond yields. The 30-year U.S. bond yield reached 4.96% on January 9, its highest level since October 2023. This rise in yields reflects the market’s expectations that the Federal Reserve will continue its hawkish approach due to persistent inflation concerns, further affecting risk assets like Ethereum.
Technical Outlook: Inverse Head and Shoulders Pattern Emerges
Despite recent price declines, Ethereum remains above both the 50-week and 100-week moving averages, signaling that bullish sentiment is still present. Notably, Ethereum is forming an inverse head and shoulders pattern, a well-known bullish reversal signal.
Head: $2,155
Left Shoulder: $2,825
As long as Ethereum holds above the $2,825 level, the bullish outlook remains intact.
Key Resistance Levels and Potential Bullish Breakout
A confirmed breakout could occur if Ethereum moves above the neckline of the inverse head and shoulders pattern at $4,085. Should this breakout materialize, the next key resistance levels to monitor are:
The all-time high of $4,865
The psychological $5,000 level
Risk of Invalidating the Bullish View
If Ethereum falls below the $2,825 level (the right shoulder), it would invalidate the bullish pattern and signal further downside potential.
Conclusion: Ethereum’s Path Forward
While Ethereum is currently navigating significant challenges, the formation of a rare inverse head and shoulders pattern suggests the possibility of a future surge. However, a breakout above key resistance levels is necessary to confirm a bullish trend. Should Ethereum fail to hold crucial support levels, the outlook could turn more bearish.
