ETH/USD Hits Key Resistance Near $3600, Bulls Eye Breakout

Key Highlights

• ETH/USD was unable to break above a key area of resistance around $3600 over the weekend and has since dropped back under its 200DMA. 
• But the cryptocurrency’s momentum remains strong given recent gains and the bulls are confident of a possible break higher. 
• FOMO ahead of the Ethereum network’s transition to Proof-of-Stake later this quarter is being cited as a tailwind for ETH/USD. 

Ether, the native token of the decentralised, open-source Ethereum blockchain, was unable to break above a key area of resistance just underneath $3600 over the weekend and has since turned about 1.7% lower in pre-US open Monday trade. Monday’s modest pullback has seen the cryptocurrency drop back to the south of its 200-Day Moving Average, which currently resides around $3890. Nonetheless, the Ethereum bulls likely remain very confident, with ETH/USD’s recent bullish momentum looking very much still intact.

Since mid-March, ETH/USD is up more than 35% and has been in a near-constant trend of posting higher highs and higher lows. The recent bull run has seemingly seen the cryptocurrency snap out of a downtrend it had been in for four months since posting record highs back in November in the $4800 area.

One bullish fundamental catalyst that has been cited by crypto strategists as helping ETH as of late, aside from the broadly favourable crypto market conditions, has been Fear Of Missing Out (often reffered to as FOMO) ahead of Ethereum’s transitions to Proof-of-Stake (PoS) blockchain validation from Proof-of-Work (PoW) later this quarter.

Ethereum’s PoW to PoS Transition

Ethereum recently launched Kiln, the final testnet of its PoS beacon chain. It is only a matter of time until the blockchain’s original execution/settlement layer and new beacon chain are merged. “There’s been an increasing amount of mainstream coverage about the Ethereum merge, particularly around how it will lead to ETH’s supply decreasing,” analysts at IntoTheBlock said in a recently published note.

Moreover, they add, “the reduced environmental impact coming from the transition to proof of stake has also began making news”. A quick search of “Ethereum Merge” on Google Trends shows that interest in the transition (relative to the past 12 months) has peaked in recent days and is likely to continue to grow.

Ethereum bulls will be hoping that, so long as broad crypto conditions remain favourable, a further building up of hype ahead of the and While the 200DMA at $3490 and resistance in the form of the 4 and 30 December lows just under $3600 are a formidable barrier to further bullish progress, a break to the upside would open the door to a swift run higher. The next notable area of resistance is around $3900 (the 2022 high), then above that between $3950 and $4000, ahead of the all-time highs around $4800.

Inflation Concerns Supporting Crypto Space

As recent geopolitical developments regarding Russia’s invasion of Ukraine and resultant global economic fallout compounds the effects of post-Covid-19 pandemic global fiscal and monetary policy largesse, inflation continues to surge across all major economies. All the chatter about higher inflation as of late has been a plus for the crypto sector more broadly and may continue to be so. Rising interest rates of course pose a problem to the crypto sector, as this raises the “opportunity cost” or holding non-yielding assets.

Central banks, most notably the Fed, have turned much more hawkish as of late and are pledged to get rates back/closer to so-called “neutral”. But there are question marks as to how far these central banks can raise interest rates before hurting the already fragile global economy. In the long-run, loose monetary conditions (by historic comparison) don’t look likely to be going anywhere and as this becomes more apparent, this should act as a tailwind for crypto more broadly.