Ethereum Price Drops 4% After $4,000 Breakout Failure, But History Points to Further Upside

The Ethereum (ETH) price is pulling back after encountering strong resistance at the $4,000 level, dropping approximately 4% on Monday to trade around $3,800.

A bearish divergence on the 14-day Relative Strength Index (RSI) chart, which recently retreated from overbought conditions, suggests that continued near-term downside is possible.

Potential support levels include a retest of the 21-day moving average (DMA) at $3,600, or the $3,500 area where previous resistance may turn into support.

Elevated ETH futures funding rates and rising market profitability, according to Glassnode data, further highlight the risk of a mid-bull market pullback.

However, Ethereum bulls should not become overly pessimistic, as the medium-term outlook for Ethereum remains as strong as it has been in years.

Altcoin Season Is Here

While much attention has been given to Ethereum’s “decline” relative to rising rivals such as Solana and Sui, this narrative is overstated.

Ethereum remains the dominant decentralized finance (DeFi) chain, retaining a commanding share of total value locked in smart contracts.

According to DeFi Llama, crypto assets worth over $76 billion are locked in smart contracts on the Ethereum blockchain, representing a 56% market share.

Meanwhile, Ethereum remains the only altcoin to have secured spot exchange-traded funds (ETFs) in the United States, making it the primary gateway for institutional investors seeking exposure to the altcoin market.

All of this positions Ethereum to be a major beneficiary of any future altcoin seasons.

Altcoin season has arguably already returned. The blockchaincenter.net index recently entered altcoin season territory, and CoinMarketCap’s (CMC) altcoin season index paints a similar picture.

Bitcoin (BTC) dominance has also begun to break down significantly for the first time since early 2021.

If history repeats, BTC dominance (BTC.D) could drop from its current level of around 56% to approximately 40% due to altcoin outperformance, rather than poor Bitcoin performance.

Indeed, the medium-term outlook for the Bitcoin price remains strong. Just under eight months after its halving, BTC entered a new phase of price discovery in November following positive US Presidential and Congressional election results.

A meaningful breakout above $100,000 has not yet materialized, but historic Bitcoin price cycles suggest the top is not in yet, with a move to $150,000 and beyond on the table for 2025.

Where Next for the Ethereum Price?

Bitcoin’s breakout to fresh record highs is a critical development for Ethereum, which tends to follow closely behind the world’s largest cryptocurrency by market cap.

In the 2020/2021 bull cycle, when Bitcoin broke out to fresh record highs in December 2020, Ethereum was still substantially below its previous record levels.

During the 2020/2021 cycle, it took ETH an additional month to even test its prior record highs. The actual Ethereum price discovery phase did not begin until two months after Bitcoin’s price discovery started.

We are seeing the exact same setup play out in 2024. If history repeats, we could see the Ethereum price retest its record highs but fail to break out decisively this month.

Real ETH upside price discovery (i.e., a move above $5,000) may need to wait until January 2025.

Around that time, there will be ample narratives regarding the positive shift in US crypto regulation as the Trump administration moves into the White House and the new Congressional session begins, providing plenty of catalysts to power a major rally.

Ethereum investors need to be patient and not be shaken out by any short-term market dips.

Bitcoin’s price rally suggests that further upside could be right around the corner for ETH, and Ethereum price predictions are likely to remain bullish.

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