Ethereum’s native token, Ether (ETH), has the potential to hit the $6000 milestone in the next few months thanks to the convergence of three optimistic indicators.
Shortage of supply
On August 5, Ethereum received a network hard fork update that improved the enthusiastic outlook for the cryptocurrency.
The EIP-1559 improvement protocol was created as part of the London hard fork, which started the burning of a portion of the Ethereum network charge, known as the base fee.
According to CryptoRank, the activation of EIP-1559 has permanently removed over 1 million Ether (ETH) from active supply, worth roughly US$ 4 billion as of November 24, 2021.
Ethereum is likewise undergoing a transition from proof-of-work (PoW) and toward proof-of-stake (PoS) (PoS). As a result, it has created a staking pool where users can earn rewards and grow their ETH holdings by depositing 32 ETH in the official PoS smart contract for a fixed period of time.
Since the launch of Beacon Chain in December 2020, the total amount of ETH deposited into the Ethereum 2.0 staking contract has topped 8.72 million coins. The yet-to-be-completed transition has essentially removed $34.8 billion in ETH from circulation.
The Ether-Bitcoin correlation is inversely related to the rate of inflation in the United States
On December 16th, the cryptocurrency market as well as the stock markets skyrocketed, after the Federal Open Market Committee (FOMC) long-awaited meeting decision
The FOMC meeting has drawn a lot of attention, with the Fed opting to maintain interest rates after core inflation hit 5.7 percent, the highest level in 40 years. The Fed is also doubling the size of taper to $30 billion each month.
Speculators frequently utilize bitcoin as an inflation hedge, which explains the benchmark cryptocurrency’s recent reaction to growing consumer prices in the US. Since the Federal Open Market Committee (FOMC) decision, Bitcoin and Ethereum have been on the rise.
Meanwhile, according to CryptoWatch, Ether’s 30-day average correlation with Bitcoin is at 0.89, implying that ETH and BTC are moving almost in lockstep.
Price action: Cup and handle pattern
A combination of decreased supply and increasing demand is a bullish support for Ether’s price. Meanwhile, on Ether’s longer-time frame charts, a cup and handle pattern adds to the case for an upside breakthrough.
The cup and handle is a bullish continuation pattern with a rounding bottom and descending channel configuration, as shown in the chart below. The structure’s profit target is normally set at the same length as the cup’s maximum height.
Given that the cup’s resistance level later broke the $4,000 level resistance, a sustained move above that level might push ETH to a price of 50 percent higher than it is now.