Ethereum price “bear flag” could send ETH down to $2,000 after a 20% drop in three weeks

Ethereum’s native token Ether (ETH) is down nearly 20% over the past three weeks, hitting a monthly low of nearly $2,900 on April 19. But while it has since rallied above $3,000, according to a classic, the technicals suggest that more downside is possible in the near-term bearish pattern.

Ethereum price bear flag setup activated

The bearish continuation signal, dubbed the “bear flag,” occurs when price consolidates higher within an ascending parallel channel after a sharp move down (the so-called flagpole). It resolves after the price breaks out of the channel to continue falling.

ETH price fell after testing the upper trendline of its bearish flag on April 4th and is now seeing an extended pullback towards its lower trendline near $2,700. If the pattern develops as intended, the price could fall further, targeting a length equal to the height of the flagpole as illustrated in the chart below.

ETH/USD daily price chart with Bear Flag setup. Source: TradingView

As a result, Ether’s bear flag setup risks a potential retest of $2,000 in Q2.

ETH price: macro factors

Ethereum’s correlation with Bitcoin and traditional markets’ areas has also increased downside risks in recent months.

For example, on April 19, the correlation coefficient between Ether and Nasdaq 100 was 0.95. A coefficient of 1 means that the two assets move perfectly in unison.

Correlation coefficient of ETH/USD and Nasdaq 100 on the daily chart. Source: TradingView

Ether price is down almost 19% since the beginning of 2022. Meanwhile, bitcoin, stocks and other riskier markets have also fallen this year as investors gauge the Federal Reserve’s willingness to aggressively hike rates and trim its $9 trillion balance sheet.

Longer term bullish factors

More or less, ETH’s decline is primarily due to the belief that less money would be available to buy riskier assets.

Related: Here’s How Ether Options Traders Could Prepare for Proof-of-Stake Migration

Nonetheless, speculators are hoping for a long-term upside on the back of the much-anticipated protocol upgrade called The Merge, which is expected to be released after June.

“ETH is still experiencing selling pressure from people looking to make a quick buck on the merger” written down DoopleCash, an independent market analyst, adds:

“Eventually we will find balance, I’m not interested in predicting that bottom, I just want to gather as much as possible before we get there.”

Additionally, the months leading up to the tech update coincided with a downtrend in ether held by exchanges, the number of non-zero ETH addressees increased, and more ETH flowed into the merger’s official smart contract.

Kennan Mell, an analyst at Seeking Alpha, argues that Ethereum’s style of running shadow forks before the merge launch increases the likelihood that the update will be successful at launch. This should attract more investors, especially those waiting on the sidelines, to accumulate ether for the long term.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should do your own research when making a decision.