FX.co ★ Ethereum adjusts with market and faces PoS transition challanges

Ethereum ended its upward spurt, failing to retest $2,000. As a result, the price began to decline and hit a support area near the level of $1,900. At the same time, the overall situation in the market remains tense due to low liquidity and trading activity. On top of that, there were alarming rumors about ETH's transition to the PoS and the US sanctions policy. These factors, as well as altcoin's dependence on Bitcoin, give rise to opinions that ether is about to start a correction.

From the technical point of view, the asset remains bullish and is likely to make another attempt to break through $2,000. The RSI resumed upward movement after a brief consolidation. The stochastic oscillator is also preparing to form a bullish crossover. Technical metrics indicate that buying activity remains high, and fundamental reasons for growth are pulling the price upwards. At the same time, the MACD continues to move flat, which indicates that there are no significant bullish signals in the long term.

Another important problem with Ethereum's technical metrics is their positioning. The stochastic oscillator is moving near 75 and the relative strength index is at 65. These are bullish signals, indicating continued buying sentiment. However, the indicators have been above 60 since July 25, and the metrics have moved into the overbought territory several times during that period. This is normal for an asset that is one step away from an important update but it also indicates that it is overheated. Recent evidence of record ETH inflation due to low online fees confirms that the market is overheated.

If we evaluate the main onchain metrics reflecting the number of active addresses and the volume of daily trading, we can conclude that there are no clear signs of positive factors. We see a correlation between the growth of the number of addresses and trading volumes, but the co-dependence manifests itself impulsively rather than consistently. This is also a normal situation for an asset that is one step away from an important merge. Fundamentally, it suggests that interest in ether, though high, is not consistent. This increases volatility, reduces institutional interest, and negatively affects the formation of a long-term trend.

In addition, more than 66% of ETH validators on PoS are going to comply with US sanctions and block illegal transactions. There would be no problem if the majority of validators supported this initiative, but we see more than 35% are disagreeing with this policy. As a result, Ethereum's move to PoS could create a conflict with far-reaching consequences. There is no doubt that the situation will be closely monitored by institutional investors, for whom validation and transaction security issues are paramount.

Overall, the PoS update will be revolutionary and will greatly strengthen Ethereum's position in the market. Ethereum issuance will drop from approximately 13,000 coins per day to 2,000-3,000. In this respect, the asset will approach Bitcoin in terms of its capabilities and attractiveness. The merger is exactly one month away, and the altcoin needs a recovery correction to conduct a consolidation period before the main Merge update starts. At this stage, the ether retains bullish potential, high but erratic investor interest, and is preparing for another $2,000 retest.