Ethereum’s price has been in a steep decline against both the US dollar and Bitcoin, with its linear weekly futures entering backwardation. This marks a significant shift in market sentiment, particularly as Ethereum falls to its lowest levels in years.
Ethereum Hits Record Lows Against Bitcoin and US Dollar
Ethereum dropped to 0.023 against Bitcoin, a level not seen since May 2020, reflecting a 74% decrease from its pandemic peak. Similarly, the cryptocurrency dipped to $1,770, its lowest point since October 2023, and a 57% drop from its highest value in December 2023.
Factors Behind Ethereum’s Decline
The ongoing crash in Ethereum’s price can be attributed to a combination of factors, including persistent ETF outflows, increasing competition from other layer-1 and layer-2 networks, and a shift in profitability within the crypto industry. These factors have contributed to Ethereum losing its dominance and profitability in comparison to other players in the space.
Futures Market Dynamics: Backwardation and Contango
Kraken analysts have pointed to the futures market to explain Ethereum’s price struggles. Alexia Theodorou, Kraken’s head of derivatives, noted that Ethereum’s weekly linear futures entered backwardation for the first time since August 2023. This contrasts with Bitcoin futures, which have remained in contango.
Theodorou commented:
“Ether’s linear weekly futures have entered backwardation for the first time since last August, reflecting growing bearish sentiment in the market and following a sharp 20% decline in the ETH price. Bitcoin’s futures remain in contango, suggesting relative strength in BTC amid broader market uncertainty.”
Understanding Backwardation and Contango
Backwardation occurs when the futures price is lower than the spot price, signaling that the market expects further price declines. Conversely, contango is when futures prices are higher than the current spot price, indicating that the market expects future strength in the asset—in this case, Bitcoin.
ETH/BTC Ratio Shows Declining Trend
The ETH/BTC price ratio has experienced a significant downturn over the past few years. Currently, Ethereum is trading below all moving averages, signaling that bears are in control of the market. Ethereum is approaching a key support level at $0.02350, which represents the lowest swing price from December 2020.
Technical Indicators Suggest Further Downside
The Average Directional Index (ADX), a measure of trend strength, has risen to 38, suggesting that the bearish trend is gaining momentum. Additionally, the Relative Strength Index (RSI) and the Stochastic Oscillator have both entered oversold territory. As a result, analysts predict that Ethereum may continue its downward trajectory, with the next support level at $0.0173, which represents the lowest swing price from December 2019.
In conclusion, while Bitcoin futures remain in contango, Ethereum’s position in backwardation and its ongoing price decline suggest growing bearish sentiment. Investors will likely continue to monitor the market closely as the situation unfolds.
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