A Glassnode analyst highlighted how Ethereum is retesting a dense supply cluster that could set the tone for the cryptocurrency’s next direction.
Ethereum is trading densely on CBD
In a new article on X, Glassnode analyst Chris Beamish explained what Ethereum looks like from a cost basis distribution (CBD) perspective. CBD is an on-chain indicator that tells us the total amount of ETH that investors last purchased at the various levels the cryptocurrency has visited over its history.
Below is the chart shared by Beamish that shows the CBD heat map for Ethereum.
As the chart shows, Ethereum’s November low gave birth to a dense CBD supply cluster around the $2,750 level. Interestingly, the zone has since repeatedly served as a support barrier for the asset.
The explanation for this trend could lie in investor psychology. In general, investors are sensitive to a retest of their cost basis because it may result in a reversal of their profit-loss balance. As such, they may be likely to show some sort of movement when it occurs.
When the retest occurs from above, holders might respond by accumulating more in order to defend their breakeven point. This is the trend potentially observed since the November low. From the chart, it can be seen that Ethereum retested the $2,750 supply zone twice in December and both times the asset was able to bounce back.
Recently a third retest took place and so far the support has held, but it only remains to be seen how long the coin will hold above it. “Holding here suggests absorption and base building, but a breakout would move the price towards thinner support where underwater supply could de-risk,” the analyst explained.
Usually, regions where a large amount of supply shares a cost base tend to act as notable sources of support/resistance. The $2,750 Cluster might fall into this category, but that doesn’t make it inviolable. “The next step depends on this level,” Beamish noted.
Furthermore, Ethereum has recently seen a drop in transaction fees, as highlighted by Glassnode in an article
Following the withdrawal, transaction fees on the Ethereum blockchain fell to their lowest level since May 2017, a potential indication of a decline in network activity.
ETH Price
At the time of writing, Ethereum is trading around $2,950, down 1.5% from last week.
