Why Is ETH Selling Off?
Many thought that the ETH merge would be a HUGE catalyst, so why the sell-off?
There’s a saying: “Bull markets make you money, but bear markets make you rich.”
On the surface, bear markets seem cruel and unforgiving, with good news seemingly ignored and hope-inducing rallies getting smashed.
However, I believe the prices we’re seeing in crypto right now (and will probably keep seeing for a while) are a perfect example of a market that will make a lot of people very rich.
So, while it’s been a very frustrating 2022, I want to give some insight this week as to what I see ahead. For a brief update, watch the video below:
Ethereum’s Post-Merge Sell-Off
The most recent bear market frustration is the post-merge sell-off in the ETH price.
As you know (because I’ve been talking nonstop about it), the long-awaited Ethereum merge went off last week without a hitch. And understandably, a lot of people were surprised at ETH’s price action that followed it. So, I want to try and make some sense of it.
Why did ETH sell off so hard after the merge?
I see three reasons…
Reason No. 1: Buy the Rumor, Sell the News
You’ll typically see this type of price action when there’s some big, well-known event that creates a short-term hype cycle. Everyone gets excited about the event, so everyone piles in beforehand expecting a huge rally after the event.
The problem is, by the time it happens, there’s nobody left to buy, so people (especially those who bought last-minute at high prices) get discouraged and sell.
Even though it’s hard to recognize a “buy the rumor” event in the depths of a bear market, this explains ETH’s price action since it bottomed out in mid-June.
From the market bottom on June 18 to September 13, right before the sell-off, here’s how ETH performed versus other cryptos:
BTC: +29.79%
Altcoins: +45.68%
ETH: +100.11%
It’s easy to lose sight of the broader context as we tend to focus on short-term performance and shut out everything else — especially when it’s negative. However, the reality is that ETH has still performed very well over the past three months despite the recent drop.
Reason No. 2: Bad Economic Data/Stock Market Sell-Off
Last week, inflation data came in hotter than expected. I covered this at length in Wednesday’s article.
The market didn’t take kindly to this news, with stocks and crypto selling off immediately after the data was released. The suggestion here is that the Fed now has a big reason to continue with (potentially large) rate hikes for the foreseeable future, at least until inflation calms down.
This was unfortunate timing as it happened right before one of the biggest achievements in cryptocurrency.
There’s been a clear trend for the past several months that crypto has been attached at the hip to the stock indices, and I don’t expect this to go away anytime soon.
After all, the market is still in a state of uncertainty, and when that happens, any asset that’s seen as risky tends to correlate.
Reason No. 3: Miners Sold
I think this is probably the thing that had the most impact on the ETH price in the sell-off immediately after the merge.
As of September 19, miners had dumped over 30,000 ETH onto the market in just four days since the merge:
One reason why this is happening is that people who were mining ETH now have to adjust and reformat their operations to mine something else, like Bitcoin (BTC).
That’s because ETH is primarily mined with graphics processing units (GPUs), while BTC is mostly mined with application-specific integrated circuits (ASICs). As the name suggests, ASICs are specifically made for Bitcoin mining, and offer several advantages over GPUs.
For example, Hive Blockchain — a Bitcoin mining company that also mined Ethereum until the merge — said that if they converted their GPUs (which they formerly mined ETH with) to ASICs, it’d increase their production (hash rate) with those units by over 35%.
Some Ethereum miners will likely use their GPUs to mine other, smaller cryptos, but I imagine that most will want to scale their operations and mine Bitcoin. In order to invest in ASICs for BTC, it’d make sense for them to free up some extra cash by selling their ETH.
Now that we’ve rationalized the ETH situation, let’s move on to where we’re going in this market…
Market Overview & Price Predictions
Unfortunately, I believe this bear market will be with us through at least the end of the year. And during that time, I wouldn’t be surprised if we even see new lows in BTC and ETH.
This sounds drastic, but crypto bear markets have the most brutal price action that I’ve ever seen. And despite the pain we’ve felt thus far, I can tell you that 2018 was even worse.
I know that it’s easy to be impatient in a market like this, but the primary function of bear markets is to reward patience and punish impatience.
Personally, I’ve been buying here and there over the past few months, and I believe it’s worth holding on. After all, the future of crypto looks extremely bright.
Down the road, another bull market is inevitable. Right now, crypto has more going for it than ever before, and it isn’t even close.
To bring out some positivity, I want to reiterate a few predictions I’ve made before for when we’re finally in another bull market. Keep in mind that the following targets are a minimum, and I actually believe they’re pretty conservative:
1) BTC rallies 10X to 12X its bear market low.
2) ETH rallies 20X to 25X its bear market low.
3) Leading alts rally 30X to 100X their bear market low.
Let me quickly clarify what I mean by “leading alts.” These are:
· Projects that have real use cases, real adoption, and dedicated and innovative teams and products — especially those that launched a token during the bear market.
· NOT the coins that surged in 2017-2018 and never surpassed their old high in the 2020-2021 bull market. Those seem to be pretty much dead.
I’ve already gone over a couple of these — like SNX and CRV — but I think that altcoins that weren’t around for the bull market actually have an even better chance of rallying 30X to 100X.
Because they’ve never seen a bull market, we have yet to see how they act during a time where lots of money is entering the space all at once. Of course, altcoins with smaller market caps are going to be more likely to hit the higher end of that range as well.
I also want to make it clear that I’m not expecting every altcoin that I like to make this sort of gain.
I see altcoins (again, I don’t consider ETH an altcoin) as an educated stab in the dark.
That is, you have the information necessary to see the potential upside, but it’s so early in the world of crypto that it’s almost impossible to guess where the market will go next and what will stick around in the mid to long term.
So, if I have 10 altcoins and three of them end up succeeding and going up 50X in the next bull run, I’m not worried about the other seven going to zero.
This downtrend has been brutal, but on the other side, we believe a HUGE bull market is building. We’re talking a generational wealth opportunity, especially in crypto . . . If you want more exposure to Ian’s crypto picks and a deeper analysis, check out our Platinum Membership.
Why the Next Bull Market Will Be Different
Lastly, I don’t expect the next bull market to have the same structure as 2020-2021.
That rally was driven by a sudden surge of trillions of dollars into the hands of the public, and with all that extra money, everyone went on a giant buying spree. At the same time, Bitcoin was moving back up and re-entering the spotlight.
It was a perfect storm, and it made for a very exciting (but very quick) rally.
There are several events that could be argued as the “start of the bull market.”
But to me, the bull market officially started with the launch of the COMP (Compound Finance) token in June 2020, which rocketed from $61 to $427 in an insane five-day span. It was the event that kicked off “DeFi Summer.”
At this point, BTC was sitting just over $9,000 and ETH was under $250. Ah, the good old days!
Strangely enough, the attention that DeFi attracted wasn’t enough to spark a rally in Bitcoin or Ethereum.
The first DeFi mania phase ended around the end of August, and the coins that had rallied several hundred percent in just a couple months proceeded to crash by as much as 90% over the next two months.
After DeFi Summer cooled off, we saw BTC begin to catch fire in Q4, breaking its previous all-time high on December 16, 2020. This created a ripple effect into Ethereum and the broader altcoin market. And as soon as the new year started, the rally went into overdrive:
BTC: 455% return in 174 days (October 20, 2020 to April 14, 2021).
ETH: 511% return in 131 days (January 1, 2021 to May 12, 2021).
Alts: 746% return in 121 days (January 11, 2021 to May 12, 2021).
Overall, the previous bull market started with DeFi excitement bubbling beneath the surface, but things were pretty boring for the most part until Bitcoin began to lift off in late October.
After that, a majority of the rally happened in the first four months of 2021, and many coins haven’t seen those highs since.
It seemed like the rally ended as soon as it began, which I’m sure was exaggerated by all the stimulus money entering the market at the same time. There were also many instances of VC firms promoting their investments as the next best thing, only to dump a ton of coins on unsuspecting retail investors.
I also think that avoiding a repeat of the last bull market would be a good thing.
As crypto comes into its own and more people take it seriously, the sudden volatility-driven hype cycles that we’ve grown accustomed to should be smoothed out.
In September 2020, the crypto asset class was around $250 billion in total market cap. Even after a 70% crash, the size is now all the way up to almost $926 billion, and even surpassed $3 trillion at its peak.
The point is, with all that extra money, it’s going to be harder to move the market up 5X to 7X in less than five months.
That’s not to say we won’t have sharp rallies from time to time, but I think the days of mania cycles — with coins going up 10,000% or more in a year and gaining tens of billions of dollars in market cap in the process — are most likely behind us.
To end this article, I’ll rehash some predictions based on the projected moves above.
Assuming the bottom is in, I believe that by the time the next bull run is over, we will have seen:
· BTC in the range of $175,670 to $210,804.
· ETH in the range of $17,600 to $22,000.
· CRV in the range of $16.02 to $53.40.
· SNX in the range of $42.75 to $142.50.
I’ll even throw in a couple smaller ones:
· DPX in the range of $3,322 to $11,073.
· RBN in the range of $4.80 to $16.00.
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