Ethereum (ETHUSD) remains one of the hottest cryptos in the market. As the world’s second-largest cryptocurrency with a market capitalization north of $520 billion, this is an absolutely massive ecosystem upon which a significant chunk of on-chain activity takes place.
As such, it should be no surprise during risk-on periods that we see Ethereum take flight. The mega-cap crypto token recently made a new all-time high after hitting a fresh record near $5,000 but has since pulled back this week below the $4,500 level, giving up about 10% of these gains.
Let’s dive into what to make of this recent volatility and whether investors should consider buying this dip or being patient and waiting for an even deeper decline.
As is the case with analyzing any big move, particularly for an asset worth more than half a trillion dollars, there are a number of factors working behind the scenes that drive investor sentiment and capital inflows or outflows into said asset. For digital assets like Ethereum, finding a concrete driver or two can be difficult to ascertain. That’s due, in part, to the fact that this isn’t a publicly traded company we’re talking about. And while much of the activity on the Ethereum blockchain can be tracked (as its blockchain is open to everyone), it’s also true that estimating future growth has proven to be very difficult, particularly as sentiment shifts within this sector.
Looking at the closest publicly traded option for Ethereum, the Grayscale Ethereum Trust Mini ETF (ETH), there are some metrics we can look at to assess whether Ethereum may be overvalued or not.
The chart above shows the put/call ratio for Ethereum, which estimates changes in market sentiment based on changes in open interest and volume over time. We’ve seen both the green and red lines on the bottom of the chart increase in conjunction with some of the big moves higher, suggesting higher volume (and higher bullish call volume) appears to be driving a significant portion of Ethereum’s recent move.
Unfortunately, using traditional financial valuation metrics such as cash flow or earnings isn’t possible when looking at assets like Ethereum. Indeed, Ethereum is valued more as an overall network, with its future network effects driving its attractiveness as an investment.
So, the more capital that flows into the crypto space, the better. That’s because Ethereum has been one of the leading beneficiaries of this surge of capital, and I’d expect that to remain the case.
I wish I had some analyst price targets to show you on Ethereum or the aforementioned Trust above, but the reality is that many traditional Wall Street experts don’t want to necessarily chime in on this digital asset party outside of commentary made in interviews or online.
So, I thought a prudent course of action would be to look at some technical indicators to see where Ethereum is trading relative to its short- and long-term averages.
The above chart shows where the price of Grayscale’s Ethereum Mini Trust ETF is trading relative to its 5-. 20-, 50-, 100-, and 200-day moving averages. As you can see, most of its move has taken place within the past 100 days, with plenty of momentum driving outsized returns for investors who got in around April lows.
Makes sense—that’s when most risk assets got beaten down by tariff worries. And with a resurgence of tariff fears taking hold once again, the fact that ETH is now trading below its 5- and 20-day moving averages does indicate some near-term bearish momentum.
That said, I do think the bullish trend remains firmly in place for Ethereum. If I had to place a wager on where Ethereum would end the year, I’d say probably higher. That’s a big “probably,” though, as the implied volatility for Ethereum sits around 70%. Accordingly, investors in Ethereum (on the long or short side of the trade) should be aware of the high-risk nature of this asset and put risk management guardrails in at their own discretion.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com