Ether’s rocky outlook despite the Merge

The fanfare over a revamp of the Ethereum blockchain is still echoing across the crypto-verse, but that’s doing little to stem a slide in Ether.

The network’s native token is down 10% since the most commercially important digital ledger implemented an upgrade to slash energy use last week.

The second-largest virtual coin had rallied from mid-June on the hype around the software update known as the Merge, but that’s fizzling now the shift is done. It’s down some 63% this year, a bruising period for cryptocurrencies.

Crypto and many other assets are also quivering ahead of what’s likely to be another big Federal Reserve interest-rate hike on Wednesday.

The sell-off in Ether is bringing technical patterns into play that hint at more downside risk. Digital-token prices were little changed on Tuesday, with Ether around $1,350 and Bitcoin just above $19,000 as of 1:10 p.m. in Tokyo.

Regressing

Ether has dropped below the second standard deviation of a regression channel drawn from its June lows. The study suggests that this brings a retreat to the third standard deviation – a level of about $1,250 – into play. If that support fails, the next marker is $1,000.

Creaking

The price of Ether of late clustered around $1,800 for a notable period of time, indicated by the horizontal bars below, which capture how much time the token spent at particular levels. That, in effect, became a ceiling it struggled to break and has since dropped below a zone of support around $1,340. For technical analysts, the breach of support raises the risk of more falls.

Betting

Options data from Deribit show a high number of outstanding Ether put and call contracts – so-called open interest – at strikes of $1,000 and $2,000, respectively, for end-September expiry. That suggests those levels define a trading range for Ether.

Meanwhile, bulls looking for a glimmer of hope might take solace from the so-called maximum pain point implied by the options bets.

This is part of a controversial theory that says options writers – often financial professionals – make more money than options buyers.

The argument is that an asset’s price will move toward the level where options writers make the most profit – where the greatest number of options expire as worthless for buyers. Deribit data puts this maximum pain point around $1,600.