Ether’s New Highs Driven by Rising Inflation Can Be A Starting Point of An “Accelerating Rally,” says Goldman Sachs


Crypto assets have been trading in line with inflation breakeven since 2019, said Goldman Sachs in a recent note to its investors.

Much like all the assets, inflation is driving the crypto market upwards, wrote the bank's Global Markets managing director Bernhard Rzymelka. And if the inflation pressures continue to persist, crypto assets will keep on seeing their prices skywards.

To Goldman, one particular crypto is looking primed to rise into the stratosphere. This crypto is the second-largest cryptocurrency Ethereum, which hit a new all-time high on Friday at $4,468.

Ether rising to new highs, just shy of $4,500, is “either a sign of exhaustion and peaking… or a starting point of an accelerating rally upon a break higher,” reads the report. While this recent surge appears to be stretched, “the RSI has yet to hit the overbought levels seen at past market highs,” it added.

Up 6.4% in the past week and 490% YTD, Ether has outperformed Bitcoin, which is only up 1% in the last 7-days and 114% year-to-date. BTC -1.41% Bitcoin / USD BTCUSD $ 50,524.41
-$712.39-1.41%
Volume 30.15 b Change -$712.39 Open $50,524.41 Circulating 18.9 m Market Cap 954.67 b
2 h BTC Hash Rate Nearing ATH, Iceland Rejecting New Bitcoin Miners Due to Power Shortage 3 h Bitcoin Acting Like A Risk Asset, Struggling with Rising Macro Uncertainty 1 d Solana Unaffected by Price Jitters while Bitcoin, Ether, Polkadot, and Cardano Post Outflows

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For Ether, the rise of decentralized finance (DeFi) sector, which has $164.26 bln of total assets locked (TVL), and non-fungible token (NFT) mania are the driving forces.

Additionally, 75,200 ETH, worth more than $2.5 billion, have been burned ever since the London upgrade in early August. Last week, the rally of SHIB token also helped burn more Ether tokens as volatility led to a spike in the fees on the Ethereum network, further helping drive Ether prices higher as well.  SHIB 0.25% SHIBA INU / USD SHIBUSD $ 0.00
$0.000.25%
Volume 1.41 b Change $0.00 Open $0.00 Circulating 10 t Market Cap 20.38 b
6 d Terra Stablecoin Supply Surges by $5B In Under A Month, Bitcoin in Macro’s Clutches, SHIB Added to Balance Sheet 1 w Twitter CEO & Bitcoiner Jack Dorsey is Out, Ethereum Is In 2 w DOGE Pumps on Elon Musk’s Enquiry to Binance, CZ Strikes Back

Goldman Sachs sees Ether surging as high as $8,000 in the next two months if this historical correction with inflation persists going forward.

The backdrop for Ethereum looks supportive as “it has tracked inflation markets particularly closely, likely reflecting the pro-cyclical nature as “network-based” asset,” said Rzymelka.

“The latest spike in inflation breakevens suggests upside risk if the leading relationship of recent episodes was to hold.”

The banking giant cautioned US inflation swaps implying core PCE inflation at or above 2.5% for the next five years, which is a lot of overheating. In reaction to this, the market expects the Federal Reserve to announce the tapering of asset purchases at this week’s policy meeting.

But again, “this lines up rather well with the Ethereum chart, suggesting a late-stage rally with longer-term market top ahead,” said Goldman.

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