Ethereum’s hangover at $4K resistance

The well-known altcoin has failed to break over the $4K resistance line on many occasions despite its massive gains in May

Olumide Adesina•Saturday, June 1, 2024•2 min read

The well-known altcoin has failed to break over the $4K resistance line on many occasions despite its massive gains in May. Given that Ether’s massive gains happened on May 21, two days before the SEC’s certification of Ethereum as a spot exchange-traded fund, the market seems to have cooled off after such an announcement.

Essentially, the rise that followed the adoption of the spot ETF is partly to blame for Ether’s inability to overcome the $4K obstacle. There is also some uncertainty and a negative influence on prices because some investors are disappointed that effective trading will take longer. Given that the open interest in Ether futures reached an all-time high on May 28, the price broke through the upper limit of the huge downward channel on the daily period. Since then, the market has been consolidating, but a significant correction does not appear imminent.
The market will probably break the pivotal $4,000 resistance zone, with the $3,600 region emerging as a support level. In this scenario, investors may feel confident that a mid-term rally toward the all-time high of $4,800 may start shortly.

If the super altcoin’s price unexpectedly rises by 10% and shorts exert undue leverage, a reverse movement might likely occur. In these situations, the exchanges will immediately liquidate the positions that do not have the necessary margin deposits and purchase Ethereum futures to reduce their risk. As a result, purchasers are hesitant to buy the altcoin due to its $16.8 billion open interest in futures, which keeps the price of ETH below $4,000.

The price of Ethereum has fluctuated significantly over the past 12 months, changing by over 101%. This hypothetical situation highlights the market’s erratic behavior and propensity to undergo significant shifts.
While longs (buyers) and shorts (sellers) in ETH futures are always matched, the danger of liquidations increases exponentially with increasing notional in play. For instance, if long contracts have an average leverage of 10x, they will be forcibly liquidated if Ether’s price drops by 10%.

Investors should carefully limit their risk in the short term given the high open interest values and the related dangers of heightened volatility. Although the approval of the 19b-4 documents was a good step forward, the S-1 forms presented additional difficulties for Ethereum Bulls.

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ABOUT THE AUTHOR See More

Olumide Adesina

Financial Market Writer

Olumide Adesina is a French-born Nigerian financial writer. He tracks, analyzes, and reports changes in financial markets with over 15 years of working experience in investment trading.