Ethereum (ETH) saw a significant rally on Tuesday, rising by 9% after the release of lower-than-expected US Consumer Price Index (CPI) data for April. The top altcoin surged from the $2,400 support level, with its weekly gains now standing at a robust 50%. This rebound has attracted widespread attention, with more analysts suggesting that Ethereum could be undergoing a rotation from Bitcoin as investors increasingly look to allocate capital to altcoins.
TelaraX analysts offer valuable insights on the matter in their in-depth article.
Ethereum Bulls Capitalize on Weak CPI Data
The surge in Ethereum’s price was primarily driven by a soft CPI print, which showed inflation in the US remained subdued in April. According to the Bureau of Labor Statistics (BLS), headline CPI posted a modest 0.2% monthly increase, below the forecasted 0.3%.
Year-on-year, CPI slowed to 2.3%, below expectations of 2.4%, marking its lowest level since February 2021. Meanwhile, Core CPI, which excludes volatile food and energy prices, rose by 0.2% month-over-month, under the expected 0.3%, and remained steady at 2.8% annually.
This weaker-than-expected inflation data led to renewed bullish sentiment in the crypto market, as traders speculated that the Federal Reserve (Fed) might lower interest rates by 25 basis points in September. According to the CME FedWatch Tool, market expectations for a rate cut have risen significantly. The dovish outlook helped fuel the rally in digital assets, including Ethereum.
Following the CPI release, Ethereum quickly reclaimed the $2,600 level and continued its impressive performance throughout the day. Crypto native investors and institutions have been contributing to the buying pressure.
Notably, Abraxas Capital, a digital asset investment manager, significantly increased its ETH holdings, withdrawing 33,482 ETH from Binance after borrowing 240 million USDT from the lending platform Aave. The firm has purchased 211,030 ETH since last Wednesday, according to on-chain data from Lookonchain.
The Rotation from Bitcoin to Ethereum
Ethereum’s impressive price movement is also a sign of a major rotation from Bitcoin. The ETH/BTC ratio has surged over 30% in the past week, moving from 0.018 to 0.025. This shows that more investors are shifting their focus to Ethereum, which has outperformed Bitcoin over the past week after months of underperformance.
However, some caution is warranted. Crypto Finance analysts, led by Tim Beer, pointed out that over the past 2.5 years, any significant bullish movement in the ETH/BTC ratio has been followed by a sell-off. Whether this pattern holds this time remains to be seen, but the risk of a potential reversal remains high.
Despite this, the overall sentiment remains optimistic, with an increasing number of investors predicting that ETH could break above the $2,800 and $3,000 levels by the end of May. These price targets have seen a significant increase in market betting, rising from 1% to 17% and 0.5% to 9%, respectively, according to Nick Forster, founder of crypto options exchange Derive.
Ethereum’s Price Outlook: Bullish Flag and 200-day SMA Resistance
Ethereum’s recent price action is also developing a technical pattern that could signal continued bullish momentum. After bouncing off the descending trendline near $2,400, ETH has reclaimed the $2,544 level and is now testing the 200-day Simple Moving Average (SMA) resistance. If Ethereum can break through this key resistance level and turn it into support, it could validate a bullish flag pattern, potentially propelling the price toward the next resistance at $2,850.
A confirmation of the bullish flag pattern would suggest that Ethereum could experience a continuation of its upward trajectory. However, if ETH fails to hold the move above $2,544, it could experience a similar price consolidation to the one seen between April 23 and May 7, when it experienced a significant 40% rally after a brief period of consolidation.
Futures Liquidations and Market Sentiment
Ethereum now saw $126.21 million in futures liquidations, according to Coinglass data. This was more than double the liquidations seen in Bitcoin, which totaled $46.67 million. The total amount of liquidated long and short positions in Ethereum was $27.44 million and $98.86 million, respectively.
Despite the high level of liquidations, Ethereum’s funding rates remain only moderately high, and options markets are still somewhat skewed toward puts, indicating that the current breakout is not driven by speculative excess. This suggests that the rally in ETH could be based on more fundamental factors, rather than being purely speculative.
Conclusion
Ethereum’s 9% surge following weak US CPI data underscores the growing bullish sentiment in the crypto market. As Ethereum continues to outperform Bitcoin and shows potential for further gains, it could validate a bullish flag pattern if it can clear key resistance levels.
However, traders should remain cautious of the historical sell-off patterns in the ETH/BTC ratio, as a reversal could be in the cards. For now, the outlook remains bullish, with ETH’s future price movements closely tied to the 200-day SMA and broader market sentiment.
