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Why I'm Buying the Ethereum Dip

Ethereum


Ethereum's monumental run has screeched to a halt.

From the beginning of 2021 to the all-time high it made in November 2021, Ethereum (ETH -7.49%) gained a mind-blowing 500%.

Since that all-time high, Ethereum is now down roughly 75%. Currently trading at just around $1,200, there doesn't seem to be much hope for a quick rebound.

While we can likely rule out a V-shaped recovery, there are interesting technical indicators that provide some context on how Ethereum has behaved when in similar territory. These indicators help put things in perspective for long-term investors who might be wary about Ethereum's current position in the market.

As always, past trends do not guarantee future results. Investors should not completely rely upon these values. 

The 200 WMA

The 200-week moving average (WMA) serves as an indicator for determining the overall health of an asset. The thinking goes that if it is trading above the 200 WMA, then conditions are considered to be favorable. When the asset falls below the 200 WMA trend line, times are considered tough. 

In Ethereum's history, it has fallen below the 200 WMA only twice. This doesn't mean Ethereum has bounced quickly off of these levels. The first time Ethereum crossed the 200 WMA, it stayed there for nearly six months. It eventually climbed above the trend line for just a month and then retraced below the 200 WMA for roughly another four months only to return above it in July 2020. 

Today, Ethereum has met this trend line again. For the first time in almost two years, Ethereum is within distance to fall below the 200 WMA. As history has shown, Ethereum could certainly trade below this indicator for more than a while, but, likely, Ethereum won't fall too much more from here. 

This is more than likely going to be an extended process. But that provides a great buying opportunity for investors. Ethereum will likely have short rallies where it flirts with the 200 WMA, seeming like it might turn that band from resistance into support.

For the time being, it might be plausible to think we will have another situation seen from July 2019 to July 2020 where Ethereum hovered around the 200 WMA for quite a while without any significant gains. This could be a perfect opportunity for investors to build up a larger position in Ethereum. 

Relative Strength Index

Another indicator that can be used to give some context is the Relative Strength Index (RSI). The RSI serves as a gauge of momentum to measure whether the asset is overbought or oversold. Values higher than 70 indicate overbuying and values under 30 signal overselling. 

Currently, Ethereum's weekly RSI just hit an all-time low of 27.27.  The last time Ethereum got close to these levels was in late 2018. From that 2018 low, Ethereum eventually increased more than 300% from roughly $85 to almost $315 in June 2019.

Moving forward

Current prices are more than a little humbling, yet Ethereum is still the second-largest cryptocurrency by a long shot. And for good reason. Without Ethereum, the crypto sector would likely not be in the shape it is in today. Decentralized finance (DeFi) would have never seen the success it has if it weren't for Ethereum and its programmable smart contracts. These smart contracts enabled developers to create things like borrowing and lending platforms, DEXs, tokens, NFTs, and more 

And yet Ethereum's market dominance in DeFi hasn't changed. As of mid-June, Ethereum still supports nearly 65% of all DeFi.

These times can be difficult for investors. But keeping perspective is crucial. Ethereum has a proven track record of providing true utility. Its smart contracts helped cement the burgeoning DeFi economy. Without Ethereum, DeFi likely would not exist. 

Despite the current downtrend, these statements still hold. While Ethereum could slide further from here and likely will trade sideways for quite some time, a buying opportunity presents itself. Ethereum won't be going anywhere any time soon. Use this as a chance to gain some further exposure to prices that will look like a bargain year down the road.

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