Ethereum breaks key support, raising red flags among short-term investors

Ethereum, the second most capitalized cryptocurrency on the market, has broken through a key support as John Bollinger anticipates a possible bullish reversal. The correlation with the Russell 2000 and monetary policy reinforce the scenario.

Ethereum's bearish move, which saw its price trade above $3.700 this week, occurred amid a volatile market structure, marked by U.S. President Donald Trump's threat to impose new tariffs on Chinese products. However, some technical analysts believe that, following this drop, the ETH price could be preparing the ground for a bullish reversal.

John Bollinger, creator of Bollinger Bands, has issued one of his rare predictions about this cryptocurrency. According to his statements shared on social media, Ethereum and Solana show a “W” bottom structure within their respective bands., suggesting that both assets could be close to starting a new bullish cycle. 

In context, Bollinger performs this type of analysis only once every one or two years, and his previous predictions have been highly accurate. For example, in September 2022, he predicted Ethereum would rise from $1.300 to $4.000. In April of this year, he identified Bitcoin's absolute bottom using the same technical pattern he now sees in ETH.

What Bollinger Bands Say About Ethereum

The Bollinger Bands They are a tool that defines relative highs and lows. Prices are considered high when they touch the upper band and low when they approach the lower band. Currently, Ethereum and Solana are in the lower band, reinforcing the hypothesis that Their prices could be at oversold levelsBollinger has noted that this signal is not present in Bitcoin, suggesting a divergence among the major crypto market assets.

The breakout of technical support on Ethereum has been interpreted by some traders as a sign of weakness. However, the confluence of the “W” floor structure and the position within the Bollinger Bands poses a different scenario. Rather than confirming a bearish trend, it could be indicating el exhaustion of selling pressure.

The correlation with the Russell 2000 reinforces the bullish thesis

Beyond technical analysis, Ethereum is showing a near-perfect correlation with the Russell 2000 index, which groups together small-cap stocks in the United States. This relationship has been observed by several industry analysts, who emphasize that both assets tend to react similarly to changes in monetary policy.

Ethereum and the Russell 2000 have formed similar technical structures over the past two years. Both are close to breaking key resistance levels, which could trigger a bullish move if the breakout is confirmed. This correlation is not new. In previous cycles, when the Russell 2000 rallied strongly, altcoins accompanied the move with significant returns.

According to experts, the sensitivity of these assets to loose financial conditions is one of the factors that explain this relationship. When the Federal Reserve cuts interest rates, money tends to flow into more speculative assets, and with the Fed close to announcing another rate cut in 2025, Ethereum and small caps are poised to capture that risk appetite. 

In this context, the next Fed meeting, scheduled for October 25, takes on special relevance. Experts already They anticipate an additional rate cut of 25 basis points, which could reinforce the bullish scenario for Ethereum and cryptocurrencies.

On the other hand, seasonality also plays an important role in the crypto market. Historically, the Russell 2000 tends to show positive performance between September and November. This pattern coincides with the start of bullish cycles in risk assets. In earlier phases, money first flowed into major indices like the S&P 500 and Bitcoin. Then, as confidence grew, flows shifted to altcoins like Ethereum and Solana.

Finally, the relationship between Ethereum and the Russell 2000 isn't limited to technical overlap. Both assets play similar roles in their respective systems. Small caps represent emerging companies with high growth potential, while altcoins like Ethereum capture innovation in the crypto ecosystem. This similarity in function and sensitivity makes them indicators of risk appetite in the market.

Monetary policy rekindles interest in ETH and cryptocurrencies

The expectation of further rate cuts by the US Federal Reserve is changing investor behavior. In a more flexible monetary policy environment, speculative assets tend to benefit, so Bitcoin, Ethereum, Solana, and other digital assets could attract inflows if the cycle shift is confirmed.

The next Fed meeting on October 25th will be crucial. A rate cut could act as a catalyst for a rotation toward more volatile assets, and in this scenario, Ethereum's technical structure and its correlation with the Russell 2000 gain greater relevance. For several experts, the convergence of technical analysis, seasonality, and monetary policy suggests the market is in a transition phase.

Historically, Ethereum has shown a remarkable ability to withstand previous cycles and take advantage of periods of monetary expansion as a vehicle to attract capital. For investors seeking greater risk exposure, this token is positioned as a strategic alternative. Even a downward technical movement could be interpreted not as weakness, but as a necessary adjustment to consolidate the foundations before a possible new bullish push.