Ethereum price

DeFi contagion? Analysts warn of ‘Staked Ether’ de-pegging from Ethereum by 50%

Liquid staking firms could default on their Ether obligations if The Merge does not happen.

The next big crypto crash could be around the corner due to Lido Staked Ether (stETH), a liquid token from the Lido protocol that is supposed to be 100% pegged by Ethereum’s native token, Ether (ETH).

Notably, the stETH peg could drop against ETH by 50% in the coming weeks, raising the risk of a “DeFi contagion” as Ethereum moves toward proof-of-stake (PoS), argues popular Bitcoin investor and independent analyst Brad Mills.

Over 1M Ether liability risks default

In detail, investors deposit ETH in Lido’s smart contracts to participate in The Merge, a network upgrade aiming to make Ethereum a proof-of-stake blockchain, also called the Beacon Chain. As a result, they receive stETH representing their staked ETH balance with Lido.

Users will be able to redeem stETH for unstaked ETH when Beacon Chain goes live. In addition, they can use stETH as collateral to borrow or provide liquidity using various decentralized finance (DeFi) platforms to earn yield.

But, if the switch to Eth2 gets delayed, this could cause a massive liquidity problem across DeFi platforms, Mills asserts, using Celsius Network, a crypto lending platform that offers up to 17% annual percentage yields, as an example.

“If customers start withdrawing from Celsius, they will have to sell their stETH,” Mills explained. “Celsius has liabilities of 1 million ETH. So, 288k are inaccessible until [the] Merge, ~30K are lost, ~445k are stETH, and 268k are liquid. Could cause a run.”

Regardless of unverified rumors that Celsius could be insolvent, the best way to secure your funds is to control your own private keys. He adds:

“stETH might not ‘depeg,’ but the risk of DeFi contagion in a crypto bear market is high.”

Contagion risks?

Moreover, even centralized yield platforms could face insolvency risks due to their ETH liabilities, argues market commentator Dirty Bubble Media (DBM), citing crypto asset management service Swissborg as an example.

Swissborg offers daily yield on about $145 million worth of Ether it holds, including 80% exposure in stETH.

*Swissborg’s daily yield offerings. Source: Official Website*

The firm had staked around 11,300 ETH out of its total Ether holdings in Curve’s stETH/ETH pool. Then the ETH peg became imbalanced on May 12 in the wake of Terra’s collapse, with stETH/ETH dropping to 0.955 on the day.

*Staked Ether to Ethereum exchange ratio in 2022. Source: CoinMarketCap*

“How is Swissborg paying daily yield on these assets, when the yield from staked Ether is locked along with the principal,” questioned DBM, adding that it could have the firm “exit their entire stETH position,” thus forcing its ETH peg even lower.

Meanwhile, the warnings coincided with a whale dumping its staked Ether positions for ETH on Wednesday.

Battening down the hatches before ropsten. pic.twitter.com/MPQV5n0XMf

— Hsaka (@HsakaTrades) June 8, 2022

Mills responded, saying that stETH’s “dynamic is no different than GBTC at a perma-discount.” In other words, sell pressure can be “merciless” once the market flips bearish and yields vanish.

He explained:

“When there’s deep liquidity & potential to arbitrage, quants, Wall Street raccoons [and] flashbois will milk the yield. When the strategy goes against them, they will add merciless sell pressure.”

As of Thursday, the stETH/ETH ratio had recovered to 0.97, still 3% below its intended peg.

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.

Brandt’s bearish ETH call — But community predicts $3K before Merge

Peter Brandt noted that ETH could drop by 29% if the downside of a potential descending triangle chart pattern is completed.

Veteran futures trader Peter Brandt has suggested that the price of Ether (ETH) could drop to as low as $1,268 in the coming month, but the consensus view of 15,500 members of the CoinMarketCap community is that the price will have hit roughly $3,131 by June 30.

The Ethereum network is now in the final steps of its long-awaited Merge with the Beacon Chain and transition to proof-of-stake (PoS), with developers confirming on Wednesday that they successfully completed the Ropsten testnet merge.

The Ropsten testnet has now been merged!

What a historic and thrilling day for the Ethereum community and what a thrilling day for

Next up, 2 more public testnet merges and then mainnet

The Merge is coming

— sassal.eth (@sassal0x) June 8, 2022

While the timeframe has often been subject to delays, the Merge is slated to go live in August if all goes to plan. The switch to PoS will massively decrease the energy consumption of the Ethereum network while also improving its security.

The price of ETH has barely responded to the latest encouraging developments, however, and is down 1.7% over the past 24 hours to sit at $1,788 at the time of writing.

Brandt has been trading since 1975 and has gained the attention of the crypto community in the past by predicting some of Bitcoin’s (BTC) historical heights and crashes.

If the bearish scenario he outlined for ETH comes true, it would mark a further 29% drop this month.

On Tuesday, Brandt highlighted a month-to-month chart from April to June to his 648,000 Twitter followers and noted that the rest of June could be rough for Ether if the market sentiment doesn’t turn significantly:

“Classical charting 101. This is a POSSIBLE descending triangle. A downside completion, unless immediately nullified, would not be constructive.”

Classical charting 101

This is a POSSIBLE descending triangle. A downside completion, unless immediately nullified, would not be constructive$ETHUSD pic.twitter.com/33kOZK4tjF

— Peter Brandt (@PeterLBrandt) June 7, 2022

Trader Crypto Tony also highlighted a similar scenario to his 201,000 Twitter followers, questioning whether a descending triangle on the ETH chart was “too obvious” to ignore. Crypto Tony’s bearish estimates were slightly higher, however, at the $1,450–$1,600 range.

But the community on CoinMarketCap seems bullish — or at least high on hopium — about the near future of ETH, with 15,466 voters accounting for an average price estimate of $3,131.75 by June 30. The climb to the level would mark a mammoth increase of 75.37%.

CoinMarketCap enables the community to vote on predicted price targets via a tab under its listed asset pages. Apart from this prediction, around 8,500 people have estimated ETH will have hit $2,981.27 by July 31, or a 66.94% increase, shortly before the Merge.

In general, the community on CoinMarketCap that votes on ETH price predictions has had varying levels of success since December.

They predicted ETH’s closing price of 2021 with 88.40% accuracy, meaning they were 11.6% off the actual price of $3,682.63 with their estimation of $4,109.65.

They then predicted the bearish drop of January with 54% accuracy, February at 76.17% accuracy, March at 89.91%, and April at 62.41%. However, they fell off massively in May with 16.97% accuracy, although that was an unprecedented month, in which Do Kwon’s Terra ecosystem caused a multi-billion-dollar market crash.

Traders target $1,400 Ethereum price after ETH drops closer to a critical support level

Ethereum’s Ropsten testnet successfully integrated the merge to become proof-of-stake, but this hasn’t stopped traders from adjusting their downside price targets.

On June 8, the Ethereum network successfully underwent the merge to become proof-of-stake on its Ropsten testnet, but the news had little impact on ETH price.

With the Ropsten upgrade now looking more like a “buy the rumor, sell the news” type of event, most analysts have kept a short-term bearish outlook for Ether price. Let’s take a look.

*ETH/USDT 1-day chart. Source: TradingView*

Can Ether escape the head-and-shoulders pattern?

Pseudonymous Twitter analyst “Cactus” pointed out a bearish head-and-shoulders pattern and questioned whether Ether price would be able to follow the sharp downside that typically follows the completion of the pattern.

Cactus said,

“This is what we are getting excited about? Hard to be bullish any timeframe until we S/R [support/resistance] flip 2K.”

The areas of support to keep an eye on below $1,800 were highlighted in the following chart posted by crypto analyst and pseudonymous Twitter user “il Capo of Crypto,” who ominously noted, “Lower highs all the time and that support has been touched a lot of times already.”

The analyst said,

“Clean break of $1,700 and last leg down would be confirmed, with main target = $1,000.”

The descending triangle pattern also forecasts further downside

A separate, but equally bearish descending triangle chart pattern was highlighted by pseudonymous analyst “Crypto Tony,” who pondered if this is “something too obvious” to ignore.

Based on the lower area of support highlighted on the chart provided by Crypto Tony, a breakdown below the current price could see Ether pullback to the $1,450-to-$1,600 range.

Price momentum turns negative

A more macro view of the general weakness being displayed by Ether was offered by pseudonymous cryptocurrency trader “Cantering Clark,” who said, “If I didn’t think that this time was slightly different, I would look at this $ETH chart and think ‘Big ships turn slowly, and they don’t stop easily.’”

Cantering Clark said,

“By high timeframe measures, this could be the beginning of actual momentum down.”

Ethereum’s Merge FOMO isn’t priced in, making a spike to $2.6K a possibility

Ethereum’s price action hangs around major swing lows despite the all-important Merge network upgrade. Analysis suggests ETH is discounted below $2,000.

In a May 30 tweet, Ethereum (ETH) core developer Tim Beiko confirmed that the much-anticipated Ropsten testnet trial of the Merge from proof-of-work to proof-of-stake can be expected “around June 8 or so.”

Interestingly, Ether’s price action is relatively unchanged despite the unexpected bullish announcement. There was a +10% spike on May 30, but those gains were given back between May 31 and June 2. It is very likely that the Merge — currently anticipated in August — has yet to be priced in, giving traders and investors a possible early entrant advantage.

It’s essential to monitor on-chain data

From an investing and trading viewpoint, cryptocurrency markets have a distinct disadvantage in comparison with regulated markets and transparency. The stock market is chock full of legally required disclosures. In the stock market, the retail trader can identify how many shares of a stock are short, what institution bought (or sold) a large disclosed amount, what insiders bought or sold and a myriad of other forms of information.

The cryptocurrency markets do not have those kinds of legal requirements. In fact, the public doesn’t know if the Bitcoin (BTC) or Ethereum being bought and sold on an exchange is the real cryptocurrency or a type of internal derivative used to facilitate liquidity. But crypto markets have something better than the stock market and that is on-chain data.

On-chain data allows investors and traders to monitor a blockchain’s network activity. It can answer questions: How many Ether are being sent to an exchange? Are there any large transactions? Are any “whale” wallets bigger or smaller? On-chain data can help determine whether a trader or investor should be bullish or bearish.

On-chain data that measure inflows and outflows are often used to determine a bias of whether a cryptocurrency is bullish or bearish. Inflow measurements are cryptocurrencies entering an exchange from outside wallets and are often perceived as a sign of incoming selling pressure. Outflow measurements are cryptocurrencies exiting an exchange to external wallets and are often perceived as a sign of holding or accumulation.

The number of inflow transactions has stayed relatively flat over the past three months, with a noticeable drop since the middle of May.

Inflow 24h change: -13.50%
Inflow 7-day change: -5.87%
Inflow 30-day change: -8.08%

*Aggregated exchange inflow transaction count. Source: IntoTheBlock*

However, the number of outflow transactions has declined since March. In addition, there was a major outflow spike on May 12, the date of the most recent Ether flash crash, followed by a resumption of a decline in outflows.

Outflow 24h-change: +3.62%
Outflow 7-day change: +8.87%
Outflow 30-day change: -1.56%

*Aggregated exchange outflow transaction count. Source: IntoTheBlock*

It is important to note that since May 29, outflows have increased and inflows have decreased. This could be a bullish signal that big money is accumulating.

Ether price remains at major swing lows and oscillators are at historical lows

The upcoming Merge event is one of the most significant in Ethereum’s history. It is rare to see the world’s second most valuable cryptocurrency remaining at 200-day lows and down more than 60% from its all-time high.

Perhaps the most important and relevant details for Ether are the position of the relative strength index and the composite index.

The weekly relative strength index remains in bull market conditions, but is just above the final oversold level of 40. The current value of 42.15 is the lowest since the week of March 18, 2019.

The composite index, likewise, is at near a historical low. The composite index, developed by Connie Brown, is essentially the RSI with a momentum indicator. It is an unbounded oscillator and can catch divergences that the RSI cannot. The weekly composite index value is the third lowest in Ethereum’s history and the lowest since the week of March 26, 2018.

*ETH/USD weekly chart. Source: TradingView*

The extreme oversold readings on the Ether weekly chart, rise in outflows and reduction of inflows can give Ethereum investors and traders a good reason to be bullish in the near term. However, any potential bullish reaction will likely be swift and abrupt, but limited to the 2022 volume point of control at $2,600.