Three reasons why Ethereum can reach $5,000 in Q1

Ethereum's native token Ether (ETH) has plunged by more than 20% after establishing its record high at around $4,867 on Nov. 10, 2021. Nonetheless, the sharp price pullback does not mean ETH can't pursue a new record high in the next few months, as several widely-tracked technical, macroeconomic and on-chain indicators suggest. 

One of these indicators envisions Ether's price reaching $5,000 in the first quarter of 2022 while others look are poised to support the bullish bias.

ETH price painting falling wedge

Ether's recent price correction is painting a potential classic bullish reversal pattern known as "falling wedge."

In detail, falling wedges begin wide at the top but contract as the price moves lower. As a result, the price action forms a conical shape that trends lower as the reaction highs and reaction lows converge. Traders realize a bullish bias only after the price decisively breaks above the wedge's resistance.

As a result, expectations remain high that the ETH price would break above its falling wedge resistance in the coming sessions. In doing so, it would rise by as much as the maximum distance between the wedge's upper and lower trendline when measured from the breakout point. 

That roughly puts the price target for Ether at $5,000.

ETH deposits to exchanges drop

Traders typically move their tokens to exchanges when they intend to sell/trade them for either fiat, stablecoins or other cryptocurrencies.

Generally, a higher number of transactions made to crypto trading platforms reflects a high selling sentiment in the market. Conversely, if the token transactions plunge, they show a strong holding sentiment in the market.

Data collected by blockchain analytics service Glassnode show that the number of on-chain Ether deposits to exchanges dropped to its 23-month low on Jan. 3.

ETH number of exchange deposits. Source: Glassnode

Additionally, another Glassnode metric that tracks the number of Ether addresses sending ETH to exchanges also reported declines over the last 30 days, the same period that saw the ETH/USD rate dropping nearly 11%.

Ethereum number of addresses sending to exchanges. Source: Glassnode

Meanwhile, the total Ether balance across all the exchanges has been in a downtrend since Aug. 2020, suggesting that ETH investors are in it for the long haul as its price rose from nearly $400 to a little over $3,800 in the same period.

Ethereum balance on exchanges. Source: Glassnode

Cheap money here to stay? 

Ether's $1,000-plus plunge from Nov. 2021 to date came majorly in the wake of the Federal Reserve's hawkish turn.

The U.S. central bank decided to accelerate the unwinding of its $120 billion a month asset purchase program, followed by three rate hikes in 2022 from its near-zero levels, to stem rising inflation. Its loose monetary policy was one of the primary catalysts behind similar price rallies across Ethereum, Bitcoin (BTC) and other crypto markets.

ETH/USD and BTC/USD weekly price chart. Source: TradingView

But the Fed's efforts to tame inflation from its current 6.8% level with three rate hikes may not impact Bitcoin and Ethereum prices in the long run. For example, Antoni Trenchev, managing partner of crypto lender Nexo believes that cheap money is here to stay.

"The No. 1 influencing factor for Bitcoin and cryptocurrencies in 2022 is central bank policy,” he told Bloomberg. He added:

“Cheap money is here to stay, which has huge implications for crypto. The Fed doesn’t have the stomach or backbone to withstand a 10%–20% collapse in the stock market, along with an adverse reaction in the bond market.”

Hungarian-born billionaire Thomas Peterffy also said that investors should allocate at least 2%–3% of their net portfolio to cryptocurrencies like BTC and ETH in case the fiat money "goes to hell." 

Additionally, Bridgewater Associates founder Ray Dalio revealed that he has been holding BTC and ETH in his portfolio against the risks of cash devaluation led by higher inflation.