3 Reasons Why Ethereum Price Dropped 25% in June

In U.S. dollar terms, Ethereum’s native token, Ether (ETH), has more than halved in 2022, while also losing value relative to Bitcoin (BTC), and now remains below $2,000 for several reasons.

What's more, ETH price may face greater losses in June due to a series of other factors, which will be discussed below.

Ethereum Fund Massive Losses

Investors are pulling $250 million out of ethereum-based investment funds in 2022, according to CoinShares’ weekly market report published on May 31.

The large outflows are in stark contrast to other currencies. For example, in 2022, investors poured $369 million into Bitcoin investment funds.

Meanwhile, Solana and Cardano, the layer-1 blockchain protocols that compete with ethereum, attracted $104 million and $9 million, respectively.

The outflow of Ethereum funds shows how the recent collapse of TerraUSD (UST) and Terra (LUNA), tokens in the Terra algorithmic stablecoin ecosystem, has dampened interest in the overall decentralized finance (DeFi) space.

ETH’s bullish outlook still hinges on expectations of a boom in the DeFi market, as Ethereum’s blockchain hosts most of the industry’s financial applications. As of June 5, the total value locked (TVL) in Ethereum-based applications was $68.71 billion, accounting for almost 65% of the total DeFi TVL.

However, TVL still reflects the massive retreat of Ethereum DeFi pools, which were hovering around $100 billion before Luna Classic (LUNC) and TerraUSD Classic (USTC) crashed on May 9.

Ilan Solot, a partner at Tagus Capital, said that Ethereum is expected to continue to fall in June due to macro risks caused by the Federal Reserve’s hawkish policies, coupled with a cautious outlook for the DeFi industry.

He told the Financial Times:

“If the Fed tightens monetary policy, the world goes into recession, and people need to pay $4.50 a gallon for gas, then they invest less in DeFi or blockchain games.”

Technical downturn

Trading behavior since May also paints a bearish outlook for Ethereum.

Specifically, Ethereum has been oscillating within a range defined by horizontal trendline support and descending trendline resistance. The pattern looks more or less like a "Descending Triangle," a bearish continuation pattern that forms during a downtrend.

As a rule of technical analysis, the descending triangle disappears after the price breaks below the support trend line, and then descends to the maximum height of the triangle. As the chart below shows, Ethereum faces similar downside risks in June.

If the price of ETH breaks below the lower trendline of the triangle, it could drop to $1,350 in June, about 25% lower than today’s price.

ETH reserves on exchanges are increasing

Data from CryptoQuant shows that total Ethereum balances on global cryptocurrency exchanges have increased by 550,459 ETH since May.

This equates to almost $950 million that has flowed into the exchange’s hot wallets since the Terra debacle began.

Typically, when traders want to exchange tokens for other assets, they send tokens to an exchange. Therefore, if the decline in ETH reserves on exchanges begins to reverse, selling pressure could increase.