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Ether Poised for Biggest Monthly Price Gain Since April; Analysts Remain Bullish

Ether may face a supply squeeze, one analytics firm said.

Aug 31, 2021 at 11:16 a.m. UTC
Updated Aug 31, 2021 at 1:45 p.m. UTC

As ether heads for a monthly rise of more than 10%, analysts are maintaining a positive bias, citing $3,400 as key resistance to beat for the bulls.

The native token of Ethereum’s blockchain was trading near $3,340 at press time, representing a 31% gain for August. That’s the second straight monthly rally and the largest since April, when prices rose by nearly 45%, according to CoinDesk 20 data.

Data tracked by Skew show ether is the top-performing major asset for this month, with bitcoin languishing in second place on a gain of almost 15%.

Demand for ether spiked earlier in the month in hopes that the Ethereum Improvement Proposal (EIP) 1559 implemented on Aug. 5 would remove a notable chunk of coins from circulation.

Ether outshines bitcoin, S&P 500 and gold

The amount of ether burned is now directly linked to network usage because the EIP burns a portion of fees paid to miners.

The upgrade has burned a total of 146626.2 ETH since activation, taking out 40% of the new coins issued, according to data source Etherchain. Recently, ether’s daily issuance, or the number of coins mined, fell below bitcoin’s, indicating that the path of least resistance for ether is to the higher side.

Still, ether’s ascent has stalled since mid-August, with prices stuck in the $3,000-$3,400 range. According to Stack Funds co-founder and COO Matthew Dibb, traders have been occupied with non-fungible tokens (NFTs). Furthermore, money has been flowing into the so-called Ethereum alternatives like Solana, Cardano, Cosmos and Avalanche.

Ether’s Bollinger bands, or volatility bands placed two standard deviations above and below the 20-day moving average (MA) of price, are narrowing due to the ongoing price squeeze.

The Bollinger bandwidth calculated by dividing the spread between the volatility bands by the 20-day MA has declined to 0.12, the lowest since October 2020. A prolonged period of low volatility consolidation often ends with a big move.

A bullish breakout looks likely as blockchain analytics firm IntoTheBlock foresees a supply crisis in ether. “Just in the month of August, more than 781,000 ETH have been withdrawn from exchanges. This, combined with the amount of ETH deposited in the 2.0 contract + the amount locked in DeFi (~ 9.7m) + the increasing burn rate driven by non-fungible tokens, may push a liquidity crisis in ETH,” IntoTheBlock said in the Telegram-based market insights group.

According to Stack’s Dibb, “A confirmed close [UTC] above the $3,400 range may pave the way to significant gains for ETH, despite the network’s gas being historically high.” Gas refers to the fee paid to execute a transaction or a contract on Ethereum successfully.

Joel Kruger, a currency strategist at LMAX Digital, also mentioned that price as the level to beat for the bulls. “We need to pay attention to $3,400 and see if we can get a daily close above. Otherwise, no confirmation and could just roll over,” Kruger told CoinDesk in a Telegram chat.

Katie Stockton, the founder and managing partner of Fairlead Strategies, expects a breakout as intermediate and long-term trends are positive. “The rising 50-day (~10-week) MA, near $2,707 currently, has now become initial support for ether, but we think short-term overbought conditions may be absorbed without a pullback of that magnitude,” Stockton mentioned in the weekly research note published on Monday, referring to the moving average.

Recent options market flows also suggest investors are positioning for a range breakout. “Options implied volatility has dropped off substantially from previous highs; however, we have seen renewed interest in ether call options for September and December expiry,” Stack Funds’ Dibb told CoinDesk in a WhatsApp chat.

A call option gives the purchaser the right but not the obligation to buy the underlying asset at a predetermined price on or before a specific date.

DISCLOSURE

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Omkar Godbole is the senior reporter on CoinDesk's Markets team.

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