Ethereum price risks dropping to $2K on 'bear flag' setup

Published at: Jan. 31, 2022

Ethereum's native token Ether (ETH) will extend its 30% slump this year to the lowest price level since July 2021, if a textbook technical indicator plays out.

Ethereum chart paints bearish pattern

ETH's price fell to its six-month low of $2,159 on Jan. 24, 2022, only to rebound sharply to as high as $2,724 days later. However, this created a so-called "bear flag" chart pattern that suggests the price could drop to $2,000 or a 17% drop from current levels.

A bear flag appears on the chart when the price consolidates higher after a strong momentum downwards but eventually moves further lower after breaking out of the upward range. In doing so, the price tends to drop by as much as the length of the previous decline, called "flagpole."

In Ether's case, the flagpole's height comes to be over $850. That roughly shifts its bear flag price target towards $2,000. Earlier this year, another bear flag formation had resulted in a similar decline, as shown in the chart above.

Rate hikes ahead

The prospect of Ether hitting $2,000 in the coming months increases further due to Bitcoin (BTC) and its vulnerability to macroeconomic trends.

Notably, the positive correlation efficiency between the Ethereum token and Bitcoin has been 0.92 in the past 30 days, according to data from CryptoWatch. In other words, Ether tailed the BTC price trends with a 92% accuracy in January 2022.

At the core of the said bearish outlook is the Federal Reserve's dovish policy. In detail, the U.S. central bank's decision to completely withdraw its $120 billion a month Covid-19 stimulus program by early March and to increase benchmark rates from their near-zero levels after that have started hurting the so-called pandemic winners, including tech stocks, gold, and Bitcoin.

Paul Krugman, a Nobel prize-winning economist and a long-term skeptic of cryptocurrencies, envisioned a Bitcoin price crash in 2022, noting that it had "disturbing echoes of the subprime crash" during the 2008 economic crisis.

"If you ask me, regulators have made the same mistake they made on subprime: They failed to protect the public against financial products nobody understood, and many vulnerable families may end up paying the price," he warned.

$2,000 first for ETH price?

As Ether looks bearish under the shadows of Bitcoin, many analysts anticipate the Ethereum token resume its climb later in 2022, owing to its involvement in the emerging decentralized finance (DeFi) and nonfungible token (NFT) sectors.

For instance, billionaire investor Mark Cuban noted last year that Ether could surpass Bitcoin in terms of growth.

I like Eth/L2s more, and there is no point arguing the Trilemma, halving or inflation. I like it more because I can see an unlimited number of applications that will change the biz/consumer world forever. And to use them you need to buy Eth/L2. BTC doesn't have that demand pull

— Mark Cuban (@mcuban) October 17, 2021

Mike McGlone, the senior commodity strategist at Bloomberg Intelligence, predicted Ether to hit $5,000 in 2022 despite Fed's tapering policies. The veteran analyst called the central bank's rate hike plans a "win-win scenario" for Bitcoin and Ether against the U.S.'s four-decade high inflation.

Nonetheless, McGlone anticipated Ether to hit $2,000 first before continuing its move higher. Notably:

"A top force to stop central-bank restraint is a decline in the stock market, with implications for cryptos [...] Price supports exiting 2021 of about $30,000 for Bitcoin and $2,000 for Ethereum appear solid."

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.