Why is Ethereum (ETH) price down today?

The price of Ethereum’s native token, Ether ETHUSD, is down today, falling 3.45% to reach $2,990 on April 16.

This decline is part of a correction that started on March 11, when ETH’s price reached a three-year high of $4,095. Since then, the cryptocurrency has retreated by 27%, mirroring declines in the broader crypto market.

At first glance, the sell-off appears to be a typical correction within a bull market, suggesting that some traders are taking profits at Ether’s recent highs.

However, the decline in ETHUSD has been further exacerbated by the escalating geopolitical crisis in the Middle East and the increasing likelihood of prolonged high interest rates in the U.S.

Risk aversion mood hurts ETH price

Today, Ether’s price drop follows Israel’s announcement of impending retaliation against Iran, signaling an escalation in Middle Eastern geopolitical tensions. 

The market’s bearish reaction is akin to what transpired over the weekend when Iran launched drone and missile attacks against Israel. This offensive triggered a market-wide pullback, with Bitcoin BTCUSD dropping towards $60,000 and numerous altcoins experiencing up to 30% declines.

The downturns across the cryptocurrency market reflect increased risk aversion among investors. This mood is strengthening further due to a resilient U.S. economy, which has dampened the potential of interest rate cuts by the Federal Reserve.

For instance, as of April 16, CME futures data showed an 81.5% probability of the Fed keeping rates unchanged in June, compared to around 50% two weeks prior. A higher-for-longer interest rate is perceived as bearish by crypto traders.

Simultaneously, the cost of options betting on further gains in the U.S. dollar has escalated to its highest level since November, indicating a shift towards safer assets.

This has further dampened buying interest in the Ethereum and broader crypto market today.

Ethereum whales are panicking

Ether’s decline today appears further due to decreasing ETH holdings among its richest investors, also known as “whales.”

For example, since March, there has been a significant decrease in the number of entities holding at least 1 million, 100,000, and 10,000 ETH tokens. The number of addresses holding 1,000 ETH has slightly increased, suggesting that this group is compensating for the declines observed in the larger holdings.

Large holders, or whales, often have significant influence on market sentiment. When they reduce their holdings, it might be interpreted by the market as a lack of confidence in Ethereum’s future prospects, potentially leading to a bearish sentiment and a drop in price.

Ethereum long liquidations

Ether’s price drop further coincides with the liquidation of $73.41 million worth of perpetual swap contracts, out of which $58.68 million are longs.

When a long position is liquidated, the asset held is automatically sold in the market. If a significant number of liquidations occur simultaneously, this can cause a substantial increase in the supply of the asset being dumped onto the market, pushing prices down even further.

Related: Stocks and crypto at the edge of ‘significant’ correction: 10x Research

Furthermore, the ETH price drop occurred after a sharp decline in its open interest (OI)—from $14.62 billion on April 9 to $11.07 billion on April 16. Meanwhile, the funding rate rose slightly to 0.007% per eight hours, still lower than its recent peak of 0.094% per eight hours.

The slight increase in funding rates, while indicating some bullish sentiment, may not be sufficient to counterbalance the negative impact of the sharp decrease in OI. It shows some willingness among Ether traders to hold longs, but it might not be robust enough to drive a price increase if the overall market participation is declining.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.