It's been far from a smooth beginning of the year for cryptocurrencies, with the price of Bitcoin dropping to below $34,000 for the first time since July and the price of Ethereum seeing a large drop in value too. The rout in cryptocurrency coincides with a stock market downturn. The trends have fueled speculation about the impact of surging inflation on digital currency. Despite recent market volatility, both Bitcoin and Ethereum started 2022 in a strong position.
Can Ethereum Drop Lower Than $1,500?
Ethereum tends to have a significant correlation with the market conditions for Bitcoin and has also experienced large declines in recent weeks. As of February 2022, Ethereum is down around 40% from its all-time highs seen last year. Its drop has been caused in part by liquidations from crypto traders who had insufficient funds to keep their leveraged positions open.
Just over a year ago, Ethereum was under $1,500. With the vast number of projects not only being built but already in use across various markets, it is difficult to see how this particular crypto could drop below $1,500 anytime soon. Lowering the gas fees alongside the upgrade to a proof-of-stake (PoS) blockchain should provide the support needed to ensure the price remains stable in the long term.
Why is Ethereum Going Down?
A number of factors could contribute to the recent price tumble for both Bitcoin and Ethereum. Although earlier this month analysts were suggesting the new Omicron variant and the internet shutdown in Kazakhstan as two central factors in the decline, and economic factors were also at play. In December, the Federal Reserve indicated that it might reduce its balance sheet and potentially raise interest rates to combat rising inflation. Also, the widespread adoption of Ethereum and cryptocurrencies in general has made them more sensitive to wide market moves. The sell off at the start of 2022 may have more association with traditional economic factors than prior drops.
During the global pandemic, the Fed tried to support the U.S. economy in a number of ways, including reducing interest rates and buying bonds. These measures designed to stimulate the economy are coming to an end because of soaring inflation.
With federal agencies assessing the risks and opportunities posed by digital currencies, many outlets are predicting regulatory responses. The Federal Reserve Board has also released a discussion paper that outlines the pros and cons for the creation of a central bank digital currency for the US.
Another factor that may have an impact on the current prices of crypto like Ethereum is the stance from Russia’s central bank. Analysts report that the Russian government is said to be putting a proposal together to ban the use of and mining of crypto in Russia, following the lead from Chinese authorities last year. However Russia's finance ministry has opposed the call for a ban and instead believes regulation is necessary.
These factors have led to a decline in cryptocurrencies in recent weeks, with adjustments ongoing and the market is still in a period of volatility.
How to Short Ethereum
Non-U.S. traders can short Ethereum using ByBit with margin trading. You borrow ETH as you are placing the trade and sell it at the current market price. The goal is to re-purchase the asset later at a lower price, which will cover your position and pay back the lender, while also leaving you a profit.
Another popular way to short Ethereum is through crypto futures trading. One of the benefits of futures trading is that you are not required to hold the asset. Instead, you have a contract to purchase or sell an asset on a particular date in the future. Although these types of trades can yield high returns with dynamic investment opportunities, it’s difficult to speculate market conditions in times of volatility. Advanced traders could also use put options, prediction markets and margin trading with leverage.
Before you short Ethereum or any other crypto asset, you should understand that markets are volatile and the conditions change daily, meaning that prices can change overnight or within a very short period of time.
Can Ethereum Still Hit $10,000 in 2022?
Ethereum is in its infancy in terms of mass adoption, so it is possible that it could reach a high of $10,000 this year. However, for Ethereum to go above this price level, it needs to live up to the expectations of the existing developers and entice new projects to build on the Ethereum network. The major Ethereum upgrade, now known as The Merge, is transitioning Ethereum from a proof-of-work (PoW) blockchain model to PoS. This transformation could have a significant impact on the adoption of Ethereum. The upgrade aims to solve problems with the network’s scalability and security. Using PoS means that Ethereum users can stake a network’s native cryptocurrency and become validators. Validators are similar to miners in that they verify transactions and ensure the network isn’t processing fraudulent transactions.
Ethereum is already one of the most popular blockchains for developing smart contracts, and with a PoS model it would attract even more developers to build within the ecosystem.
Although adoption of cryptocurrencies has been strong, less than 16% of Americans are said to own crypto and only 4.4% of U.K. adults. As demand for applications rises, so too will the need for growth of diversity in investor portfolios. Ethereum, alongside other cryptocurrencies, has succeeded in becoming a unique asset class that does not fit into the traditional financial mold. While Bitcoin serves a similar purpose as gold (a store of value), Ethereum is considered a general purpose blockchain with limitless use cases.
Where To Buy Ethereum
Ethereum is available from a multitude of centralized and decentralized cryptocurrency exchanges. The safest exchanges are U.S. based, which also means you’ll need to comply with the U.S. Securities and Exchange Commission’s (SEC’s) know your customer (KYC) guidelines. For tax purposes, making an exchange account will require inputting your personal information including your address and social security number. To buy Ethereum, you can easily set up an account at Coinbase Global Inc. (NASDAQ: COIN) or Gemini exchanges.
Will Ethereum Keep Crashing?
Uncertainty in the markets overall leaves a lot of investors unsure when it comes to crypto assets. Fed cutbacks with a focus on reduced public spending overall present a poor short-term outlook. However, the newly announced upgrade to a PoS blockchain and the booming NFT markets alongside the consistent development of projects within the Ethereum ecosystem do signal some positivity that can help this cryptocurrency to stabilize.
Is Now a Good Time to Buy Ethereum?
If you believe in blockchain technology and the power of community within the crypto ecosystem, then you may never see a wrong time to buy Ethereum. Although the changing markets can be worrisome for a period, long-term holders of Ethereum will not be phased by the recent market decline, as volatility isn't new in the world of crypto. Since Ethereum is volatile, you should only spend what you can afford to lose and do your research before investing.