Ethereum price is at risk as the 2-year bond yield surge to 4.7%

on Feb 28, 2023
  • Ethereum price has formed a small double-top pattern on the 1D chart.
  • The biggest risk for Ethereum and other cryptocurrencies is the bond market.
  • 2-year treasury bonds are yielding over 4.6%.

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Ethereum (ETH/USD) price has recoiled in the past few weeks as the rally that started in January fades. It was trading at $1,630, which was a few points below this year’s high of $1,755. Other cryptocurrencies like Bitcoin, XRP, and Cardano have all pulled back.

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The biggest risks to Ethereum

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Cryptocurrencies tend to have a close correlation with each other. Therefore, the outlook for Ethereum is mostly the same for other coins like BTC and Ripple. In most cases, all digital currencies tend to move in sync with each other. 

The biggest risk for Ethereum prices is the performance of the bond market. For years, cryptocurrencies and stocks thrived in an era of low-interest rates and quantitative easing. This happened as the bond market almost died.

Recently, however, America’s Treasuries have become sexy again. Data shows that the 2-year Treasuries is yielding 4.7% while the 10-year is yielding 3.9%. This means that the yield curve has inverted since shorter-term bonds are yielding better than longer-term ones.

Therefore, there is a sector rotation between high-risk assets like Ethereum to safe assets like government bonds. When this rotation happens, risky assets like cryptocurrencies and stocks tend to underperform the market. 

As such, we believe that the biggest risk for cryptocurrencies in 2023 is not government regulations or other factors. Instead, the performance of the bond market is the main risk. Besides, many money managers are now simply moving to bonds and getting almost guaranteed returns.

Bond yields will likely continue rising as investors react to the recent strong data from the United States. Inflation remains at an elevated level while retail sales and the unemployment rate has been strong. 

Ethereum price prediction

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Ethereum price

ETH/USD chart by TradingView

The daily chart shows that the ETH price has formed a double-top pattern at about $1,700. In most cases, this pattern is usually a bearish sign. Its neckline is at $1,476. At the same time, it has moved above the 25-day and 50-day moving averages and is hovering near the highest level in November. 

Therefore, March will likely be a tough month for Ethereum and other financial assets. As I wrote on Monday, Morgan Stanley’s chief strategist has already warned investors to expect more weakness in March. He expects that the S&P 500 index will retreat to $3,000. 

Therefore, Ethereum price could retreat to below $1,400 in March. If this happens, the next level to watch will be at $1,200.

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