The Ether price outlook looks bullish in July, with a major technical update called EIP-1559 promising to tighten it by burning in part the fees earned in Ether.
But this month so far, Ether has outperformed its leading rival, Bitcoin. A positive correlation was seen on July 13 after the opening bell of the New York session fell to a two-week low below $ 2,000 while Bitcoin slid below $ 32,500.
ETH / USD price chart against BTC / USD | Source: TradingView
Ether hit an intraday low of $ 1,961 after falling 3.43%. This humble move follows Bitcoin’s rapid decline as traders evaluate the latest US inflation data.
The US consumer price index rose 0.9 percent in June to 5.4 percent year-on-year, marking its highest level since 1991. Traders were selling Bitcoin and other investors’ cryptocurrencies when this news was released, reflecting concerns about the steadily rising Rate of inflation suggesting the US Federal Reserve (Fed) to withdraw its quantitative easing policy.
Macroinflation vs. Aether Deflation
In particular, the minutes of the June meeting of the Federal Reserve’s Open Market Committee found that officials are in favor of at least two rate hikes by the end of 2023, assuming inflation rates are much higher than their 2% target. The central bank has kept interest rates below 0.25% since March 2020, which has dampened investor demand for dollars and thus increased demand for safe investments, including Bitcoin.
Ether has a one-year correlation to Bitcoin of 0.64, according to Crypto Watch, which increased over the course of 2020 and into the first quarter of 2021 due to similar macroeconomic fundamentals.
However, ETH has posted better gains versus BTC as a variety of Ethereum-related sectors are booming, including decentralized finance (DeFi), non-fungible tokens (NFT), and stablecoins.
The one-year correlation of Bitcoin with Ether | Source: Crypto Watch
But the Ethereum network also encountered technical obstacles because the bandwidth was constantly overloaded. An overloaded blockchain caused miners – the units that process transactions and add them to Ethereum’s public ledger – to raise fees. In some cases, users are forced to pay more gas than they are transferring.
The problems seem to have prompted Ethereum to switch its protocol from a miner-friendly but energy-intensive proof-of-work (POW) to a faster and cheaper proof-of-stake (POS). In particular, the London Hard Fork, which includes five proposed improvements, hopes to address these inefficiencies.
One of the improved protocols called EIP-1559 introduces a new fee structure to dump ETH. Accordingly, it proposes to burn off part of the fees charged in ether and thus create more deflationary pressure. In addition, the upgrade replaces miners with validators and requires each validator to type in at least 32 ethers in order to operate their POS network.
That also pulled a large part of the ether supply out of circulation, making it scarcer than Bitcoin.
For Konstantin Anissimov, Managing Director at CEX.IO, rising macroinflation offers more upside opportunities for Ether than for Bitcoin. He predicts that ether will hit $ 3,000 in an anti-inflation tale.
“As the situation stabilized, the Fed increased its balance sheet to more than $ 8 trillion since early 2020 – a significant increase.”
“The fall in prices is an opportunity for investors to actively accumulate coins at a discount while believing in their ability to be an appropriate hedge against inherent inflation.”
And so the accumulation of aether happens at breakneck speed. According to CryptoQuant, a Korea-based blockchain analytics firm, the total amount of ether in reserve on all exchanges has more than halved after the price correction in the second quarter, from $ 4,384 to $ 1,700.
ETH balances on all exchanges have been falling since September 2020 | Source: CryptoQuant
The correlation of Ether with Bitcoin remains a bottleneck as Ether aims to move higher. However, Josh Arnold, a financial analyst affiliated with Seeking Alpha, pointed out that ether and bitcoin are sometimes negatively correlated. The correlation of 0.64 is not perfect.
Instead, Arnold focused on Ether’s price chart structure, noting that when Ether hit a high in mid-May, it formed a descending triangle pattern. Descending triangles are usually continuation patterns.
Descending triangle outlook based on Josh Arnold’s trading setup | Source: TradingView
Arnold noted that ether bulls must hold triangle support to maintain the uptrend, otherwise the advantage will be in the bears’ favor.
“A breakout of the descending triangle to the bottom would cause Ether to hit a new low in 2021 and try to find support again, but at much lower levels.”
But given Ether’s resilience to the bears, Arnold predicts it will likely rise higher.
Disclaimer: This article is for informational purposes only, not investment advice. Investors should research carefully before making a decision. We are not responsible for your investment decisions.
According to Cointelegraph