Ethereum price drops 20% in a week, but investors are still bullish

The price of Ether (ETH) saw a significant 20% surge between March 3 and March 13, reaching a double top formation near $4,100. However, this was short-lived as ETH experienced a 20% drop, testing the $3,200 support on March 19. Analysts believe that the initial rally was driven by highly leveraged long positions.

Unfortunately, Ether’s bullish momentum was cut short due to the forced liquidation of $375 million in ETH futures in the past week. This raises the question of whether this correction is enough for Ether to bounce back and potentially spark a new bull run.

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The Impact of the Crypto Crash on Ether’s Price

During the recent crypto market downturn, Ether’s performance fell behind that of its competitors. While the overall market experienced a 15.5% drop in market capitalization over five days, Ether’s downturn was more significant. This was due to the 12% decrease in Bitcoin’s value, the 21% increase in Solana’s value, and the slight 2% decrease in Binance Coin’s value during the same period.

Interestingly, Solana also faced challenges during this time, with increased fees and failed transactions as the network struggled to handle the surge in activity. This was largely driven by a spike in interest for new memecoins on the platform. In fact, within just three days, traders injected around $100 million into new Solana memecoins, as reported by Cointelegraph.

Meanwhile, Ethereum underwent its most significant upgrade in over a year on March 13, which coincided with Ether’s peak price for the current cycle. This upgrade included a reduction in transaction fees for layer-2 networks like Arbitrum, Optimism, and Base, making Ethereum more scalable. Additionally, the introduction of data blobs improved the network’s data-handling capabilities.

This upgrade has been deemed a success, as evidenced by the surge in activity on layer-2 solutions, which reached an all-time high of 122 transactions per second (TPS) over the past two days, according to L2beat. This represents a 31% increase from the previous week and is more than eight times the base layer capacity of Ethereum, which is only 15 TPS.

Despite the excitement surrounding Ethereum’s network upgrades, the issue of high base layer gas fees remains a significant concern, with an average cost of $12 on March 18, as reported by BitInfoCharts. This highlights the ongoing appeal of alternative platforms like Solana and Avalanche, which were among the few cryptocurrencies in the top 20 to see gains during the recent market downturn.

Ether futures show moderate bullishness despite recent price drop

Despite a 20% decline in Ether’s value since March 13, the ETH perpetual contract funding rate has reached almost zero, indicating a balance between buyers and sellers and a market equilibrium.

This is a significant shift from the previous week, where buyers faced a 1.2% fee to keep their positions open, as the funding rate has now dropped to 0.014% per 8-hour period (equivalent to 0.3% over seven days). This suggests a cooling off of the previously heated buying enthusiasm.

To gauge the stance of professional traders, it is important to look at monthly futures. Typically, futures trade at a 5% to 10% premium over spot exchanges, reflecting the cost of carrying the investment until settlement.

Currently, Ether’s futures are trading at a 22% premium, a significantly high number that indicates a strong demand for long positions, possibly due to optimism surrounding the upcoming decisions on Ethereum’s spot exchange-traded funds (ETFs). This optimism remains even after Ether’s price correction to $3,200 on March 19, which can be seen as a bullish signal amidst the broader market recalibration.

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