Ethereum’s native token, Ether (ETH), isn’t immune to downside risks in September after rallying roughly 90 percent from June’s highs of around $880.
Much of the token’s upward movement is due to the planned September 15 integration of a technical update to Ethereum’s proof-of-stake (PoS) protocol.
But despite the impressive gains between June and September, Ether still hovers 70% below its record high of $4,950 since November 2021.
Here are three Ethereum bearish market indicators that show why it looks more bearish.
Sell Ethereum Merger News
Ethereum options traders expect the price of Ether to reach $2,200 ahead of the consolidation from the current $1,540 level, according to Deribit data compiled by Glassnode. Some see the price reaching $5,000, but enthusiasm seems flat after the PoS switch.
After the merger, there seems to be a demand for downside protection among traders, with the so-called “options skewed smile” metric (OIVS).
OIVS shows the implied volatilities of options with different symbols for a given expiration date. Therefore, non-capital contracts often exhibit higher implied volatility, and vice versa.
For example, in the Ethereum September 30 Options Expiration chart below, the slope and shape of the smiley can help traders assess the relative value of the options and gauge what tail risk the market is facing.
Therefore, a large buy-side interest in ETH call options ending in September, pointing to the downside of the volatility smile, indicates that traders are willing to pay a premium for long exposure.
“Post-merger, the left tail is pricing in higher implied volatility, indicating traders are paying a premium for post-merger sell-the-option protection,” Glasnode analysts wrote, citing the OIVS chart below. Call and place open interests at various tick prices.
In other words, ETH traders are hedging their bets during news sales.
Hawkish Federal Reserve
Additional negative signals from Ethereum come from its exposure to macroeconomic events, primarily quantitative easing by the Federal Reserve.
Last week, Federal Reserve Chairman Jerome Powell reiterated the central bank’s commitment to curbing inflation, “and they must continue until the job is done.” In other words, Powell and his allies could raise interest rates by 0.5%-0.75% at the next policy meeting in September.
A price hike has been bad news for the ETH/USD pair recently, given the positive correlation between the growing crypto sector and traditional risk indicators on growing cash flows. For example, the daily correlation between ETH and Nasdaq since September 3rd was 0.85.
Therefore, there is a high probability that Ether will decrease with risky assets, especially if the Fed increases by 0.75%.
That giant ether “flag”.
From a technical perspective, Ether is painting what looks like a bearish flag on its weekly chart.
After bearish flags move from strong to low, the price is seen consolidating in the higher parallel channel. After their price breaks out of the channel, they break to the bottom and, according to technical analysis rules, fall like the previous low trend length (flag).
Ether has tested the bearish flag downtrend as support this week. From here, the Ethereum token may rise to retest the flag high trendline (~$2,500) as resistance or break below the lower trendline to continue the winning trend.
Related: ETH Price View for the Consolidation: Bullish or Bearish? | TheChartGuys interview
Considering the above-discussed factors, the ETH/USD pair is at risk of entering the bear flag breakout phase in September as shown in the chart below.
Therefore, ETH’s bearish flag profit target will reach $540 in 2022, which is roughly 65% down from today’s price.
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