In a tweet on May 30, Ethereum (ETH) core developer Tim Beiko confirmed that the much-anticipated transition from proof-of-work to proof-of-stake can be expected “around June 8.”
Interestingly, ether’s price action was relatively unchanged despite the unexpected bullish announcement. There was a +10% surge on May 30, but those gains were paid back between May 31 and June 2. It is likely that this event has yet to be priced in, giving traders and investors a possible early entry advantage.
Monitoring on-chain data is critical
From an investment and trading perspective, the cryptocurrency market has distinct disadvantages compared to regulated markets and transparency. The stock market is full of legally required disclosures. In the stock market, retail traders can identify how many stocks are short, which institutions are buying (or selling) large disclosed amounts, what information is being bought or sold by insiders, and countless other forms of information.
The cryptocurrency market does not have these legal requirements. In fact, the public does not know whether Bitcoin (BTC) or Ethereum bought and sold on exchanges is a real cryptocurrency or an internal derivative used to facilitate liquidity. But the crypto market has something better than the stock market, and that is on-chain data.
On-chain data allows investors and traders to monitor the network activity of the blockchain. It can answer the question: how much ether was sent to the exchange? Have a big deal? Are any “whale” wallets bigger or smaller? On-chain data can help determine whether a trader or investor should be bullish or bearish.
On-chain data measuring inflows and outflows is often used to determine whether a cryptocurrency is a bullish or bearish bias. An inflow measurement is cryptocurrency entering an exchange from external wallets and is often seen as a sign of incoming selling pressure. Outflow measurement is the withdrawal of cryptocurrencies from exchanges to external wallets and is often seen as a sign of holding or accumulation.
The number of inflows has remained relatively flat over the past three months, with a notable decline since mid-May.
24-hour change in inflow: -13.50% 7-day change in inflow: -5.87% 30-day change in inflow: -8.08%
However, the number of outflows has declined since March. Additionally, there was a major outflow spike on May 12 (the date of the most recent ethereum flash crash), followed by a resumption of declines in outflows.
Outflow 24-hour change: +3.62% Outflow 7-day change: +8.87% Outflow 30-day change: -1.56%
It is important to note that since May 29, outflows have increased and inflows have decreased. This could be a bullish sign that big money is accumulating.
Related: 3 Key Indicators Traders Use to Determine When Altcoin Season Begins
Ether price still at major swing lows, oscillators at all-time lows
The upcoming merger event is one of the most significant in the history of Ethereum. It’s rare to see the world’s second most valuable cryptocurrency hold a 200-day low and drop more than 60% from its all-time high.
Perhaps the most important and relevant detail for ethereum is the position of the relative strength index and composite index.
The weekly RSI remains bullish, but just above the final oversold level of 40. The current value is 42.15, the lowest since the week of March 18, 2019.
Likewise, the composite index is near all-time lows. The composite index developed by Connie Brown is essentially an RSI with a momentum indicator. It is an unbounded oscillator that catches divergences that RSI cannot. The weekly composite index value is the third-lowest value in Ethereum history and the lowest value since the week of March 26, 2018.
Extreme oversold readings, increasing outflows and decreasing inflows on the weekly ethereum chart could give ethereum investors and traders good reasons to be bullish in the short term. However, any potential bullish reaction could be swift and sudden, but limited to the 2022 volume control point of $2,600.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk and you should do your own research when making a decision.