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

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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.

Ether 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 when the price consolidates higher after a strong momentum downward 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 a “flagpole.”

ETH/USD daily price chart featuring bear flag setup. Source: TradingView

In Ether’s case, the flagpole’s height comes to be over $850. That roughly shifts its bear flag price target toward $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.

Bitcoin’s correlation with altcoins in the past 30 days. Source: CryptoWatch

At the core of the said bearish outlook is the Federal Reserve’s dovish policy. In detail, the United States 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 Ethereum’s token to resume its climb later in 2022, owing to its involvement in the emerging decentralized finance and nonfungible token sectors.

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

Mike McGlone, senior commodity strategist at Bloomberg Intelligence, predicted Ether to hit $5,000 in 2022 despite the 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.

Related: Ethereum hash rate scores new ATH as PoS migration underway

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

“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.

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