Bulls are back in control of the crypto market on Wednesday, with the Ethereum (ETH) price rallying over 4% back towards $3,800 in wake of the latest US inflation figures all but confirming that the US Federal Reserve will cut interest rates by another 25 bps later this month.
Just In: November US CPI annual inflation rises 2.7%, in line with expectations for 2.7%.
Core CPI inflation increased 3.3% Y/Y, matching forecasts for a gain of 3.3%.
What will Jerome Powell do now? pic.twitter.com/xgQPwTmokZ— Jesse Cohen (@JesseCohenInv) December 11, 2024
The latest US inflation report delivered no surprises, and markets now price a 96.2% chance of a 25 bps rate cut later this month, per the CME’s Fed Watch tool.
The Ethereum price is still down about 7.5% from last week’s highs in the $4,100.
But its technical set up looks strong, and many would argue that the latest pullback in the market was healthy, given it cleared out excessive leverage, setting the foundation for a stronger rally.
In recent weeks, as ETH rallied from sub-$3000 to its recent highs above $4,000, the funding rate paid by traders looking to take on leverage had swollen to as much as 0.0688%, per coinglass.com.
That suggests that the recent price rally had been accompanied by a surge in demand for leveraged long positions, raising the risk of near-term volatility.
However, in wake of the latest market correction, funding rates have normalized to around 0.008%, suggesting this speculative excess has been largely wiped from the market.
Where Next for Ethereum Price – New ATHs This Month?
Now that speculative excess has been taken out of the market, the chances of a more sustainable Ethereum price rally into the year’s end have risen.
Fundamentals/macro are certainly a tailwind – the Fed is set to continue cutting interest rates into a strong US economy (which is great for risk assets) and optimism remains high ahead of the arrival of the incoming pro-crypto Trump administration in January.
Charts are also sending a bullish signal. The Ethereum price’s recent bounce at $3,500, from its 50DMA and July highs sends a signals that the bulls never really gave up control of this market.
As Bitcoin (BTC) pushes back above $100,000 and ETH pushes back above $3,800, a retest of last week’s highs are likely.
But could ETH press on to hit new record highs above $4,800 this month?
Well, historic patterns in the crypto market and Ethereum’s relationship to Bitcoin suggest the chances are good.
Bitcoin is currently trading exactly in line with its four year price cycle, where it breaks out into a new price discover phase within 8 months of the halving.
As Bitcoin breaks out to fresh record highs and enters price discovery, Ethereum has historically lagged.
It typically takes Ethereum an additional month to even return to its all-time highs, and then another month to break into its own phase of price discovery.
History appears to be repeating itself right now, suggesting Ethereum could retest record highs this month, then break substantially above them in January.
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