Ethereum price has dropped over 4% in the past 4 hours. A sharp drop started to happen after a whale moved 4,000 ETH to Binance 20 minutes before a flash crash across the market.
ETH/USD 4-hour chart | Source: TradingView
Why Ethereum price plummeted?
The most obvious reason behind Ethereum’s sharp drop on November 2 was Bitcoin’s sudden correction. Bitcoin price has dropped from $ 13,750 to $ 13,200, offering a 4% drop in hours. Bitcoin’s sudden decline in price was unexpected because of the rate of futures market funding. Bitcoin futures markets implement a mechanism called “funding” to ensure a balance in the market.
Due to the funding system, when most of the market is selling or short selling Bitcoin, short-sellers have to encourage long-term holders or buyers. This also happens to buyers when the market is flooded with long holders. When the funding rate is negative, the short-term holder needs to pay fees to either the long holder or a buyer to maintain their positions. Since this means there is more incentive to buy BTC and bet on its price going up, it usually causes BTC to go up.
When Bitcoin falls dramatically, its funding rate on major exchanges is negative. As a result, the drop has surprised many traders, increasing its negative impact on Ethereum.
In the face of selling pressure coming from Bitcoin’s short-term drop, whales have sent more ETH into exchanges. According to CoinMetrics, a whale transferred 4,000 ETH to Binance just 20 minutes before the price dropped. That Ethereum is pouring into the exchange doesn’t mean that the whale is selling ETH. However, since whales do not tend to store cryptocurrencies on exchanges, it often suggests selling.
— CoinMetrics.io (@coinmetrics) November 2, 2020
An order to sell 4,000 ETH, even if it was sold out simultaneously, is still not enough to cause a sharp breakdown in the short term. Based on Ethereum’s price trend, it is likely that the initial large sell order caused other whales or retail investors to follow suit.
But it’s not all negative for Ethereum in the medium term
In terms of the technical structure of the Ethereum price, ETH also has some major levels of support in the near term. The $ 380 level remains the first major support level, followed by $ 372 and $ 366. At least for the foreseeable future, especially if ETH can stay above key support zones, the medium-term outlook remains neutral.
Chart of ETH’s price action over the past few weeks with technical analysis | Source: TradingView
The chart’s key analysis is that Ethereum’s price action over the past week looks eerily similar to that seen in the middle of October, during a period of consolidation around $370. This simple fractal analysis indicates that the cryptocurrency could move toward $430 and beyond in the coming days.
Both periods highlighted in the chart have extremely similar price action, suggesting that a similar trend will occur again.
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