This Ethereum price chart pattern suggests ETH can reach $6.5K in Q4

The upside outlook appears as ETH price eyes a breakout above its five-month-old resistance trendline.

Ethereum's native token Ether (ETH) has rallied by more than 415% this year to over $3,800, and two major bullish patterns developing on its charts highlight the scope for another upside move, ultimately toward the $6,200–$6,500 price range.

ETH price eyes $4K resistance breakout

The first decisive break above the psychological $4,000-mark, which serves as a resistance trendline to a five-month-old ascending triangle and a cup and handle pattern, could trigger a textbook price rally in the coming sessions.

In detail, the $6,250-level appears as the profit target for the Ascending Triangle pattern, calculated by measuring the widest distance between its horizontal and rising trendlines and adding the output to the potential breakout level around $4,000.

Thus, the price boom reflects moves equivalent by roughly 64%.

At the same time, the Cup and Handle pattern, which has a slightly lower success rate than Ascending Triangle, shows a potential run-up toward $6,550 in the coming sessions, up by 56% from current levels.

Its profit target emerges by measuring the distance between the Cup's right peak and its bottom and adding the outcome to the potential breakout level around $4,000 — the same as Ascending Triangle.

One of the primary catalysts that support the two bullish indicators is trading volume, which has been falling across the formation of the said patterns. That suggests a weak consolidation sentiment among traders. Meanwhile, the relative strength index (RSI) below the overbought threshold of 70 also shows adequate room for a bull run.

The Bitcoin correlation effect

The optimistic outlook for ETH appears in the wake of a market-wide upside boom led by Bitcoin's (BTC) 29% month-to-date price rally.

According to CryptoWatch, the 30-day correlation coefficient between Bitcoin and Ethereum sits near 0.89, meaning that the success rate of the two assets moving in sync is 89%.

Ecoinometrics, a crypto-focused newsletter service, noted the positive correlation as it highlighted the Ether price's reaction to Bitcoin "halvings," a pre-programmed event that slashes the BTC's issuance rate by half every four years, against its 21 million supply cap.

The portal studied Bitcoin and Ether's price reactions to the previous two halvings and applied the dataset to predict their tops after the third halving, which took place on May 11, 2020. As a result, it anticipated BTC to rise 29.5x times to hit $253,800 by late November 2021.

Similarly, Ecoinometrics highlighted $22,300 as Ether's price target in the same period, based on its 120x price rally following the second Bitcoin halving.

ETH supply crunch continues

More bullish cues for Ethereum appeared in the form of its ongoing supply squeeze.

Related: Ethereum price hits $3,800, boosting bulls' control in Friday's ETH options expiry

Notably, the total number of Ether deposited into the Ethereum 2.0 smart contract reached an all-time high of around 7.98 million ETH on Oct. 1. These tokens remain locked/untransferable for one year or more.

Meanwhile, the total amount of Ether held across all exchanges continued to stay around its record low levels, with CryptoQuant reporting 18.187 million ETH in reserves on Monday compared to 23.323 million ETH a year ago.

Moreover, crypto data tracker Santiment reported a rise in new Ether addresses last week while the number of non-zero Ether wallets reached a record high of 64.5 million.

Ethereum overview

Ethereum can be thought of as a blockchain-based decentralized computer. While Bitcoin (BTC) was created as a money experiment, Ethereum was designed as a platform for decentralized applications (DApps). In its development, the network’s founders accepted the loss of a certain level of technological efficiency in order to achieve the more trustless environment that the blockchain brings.

The Ethereum ecosystem consists of a network of developers, entrepreneurs and investors who support the platform and of Ether (ETH), the native currency of the platform. Ether is the second-biggest cryptocurrency based on market capitalization, surpassed only by Bitcoin. The purpose of Ether is to act both as a cryptocurrency and as a fuel to support the Ethereum network — for example, through fees.

The Ether price has continued to increase over the years as blockchain projects flock to the Ethereum network to build out their platforms. The greater the use case of the Ethereum protocol, the higher the Ether price seems to have the potential to rise. One use case in particular, decentralized finance (DeFi), has exploded since the boom of 2020 as users look to bolster their returns through lending, yield farming and other activities. In the interim, the total value locked (TVL), which reflects the size of the market segment, has ballooned on the Ethereum network.

Introduction to Ethereum

Having been referred to as a global supercomputer, Ethereum builds on the idea of the Bitcoin network but takes a sharp turn in that it adds the functionality of a base layer. This makes it possible for developers to build on top of it, which they have done in many ways via protocols such as side chains to support interactions between chains, or interoperability. Ethereum gives developers an opportunity to build on a different type of platform — one that is trustless, decentralized and has been touted as a new internet, or Web 3.0.

Ethereum’s secret weapon is smart contracts, which are a game changer for internet transactions. The Ethereum white paper describes a smart contract as “a piece of code implementing arbitrary rules.” This basically means computer code written by anyone on the blockchain that not only specifies the terms of a contract but has the ability to automatically enforce said terms.

Many of the hottest crazes in the cryptocurrency scene have taken place on Ethereum, including initial coin offerings (ICOs), stablecoins, DApps, DeFi and nonfungible tokens (NFTs).

Ethereum history

Ethereum was conceived by Russian-Canadian computer programmer Vitalik Buterin in 2013 at the young age of 19. 2014 was also a key year for the project, as it is when Buterin connected with his other seven co-founders for the first time and Ethereum raised $18 million USD in a crowdfunding campaign, demonstrating the community support of the project.

It wouldn’t be until July 30, 2015, that the mining network would be released and smart contracts could be executed on the platform. Buterin didn’t go it alone, as Ethereum has a deep bench of co-founders, some of whom have since gone on to launch successful decentralized projects of their own. They include:

Gavin Wood

Anthony Di lorio

Charles Hoskinson

Mihai Alisie

Joseph Lubin

Amir Chetrit

Jeffrey Wilcke

Network security

The Ethereum network is secured by nodes — some 20,000 of them globally. Anyone can run a node by contributing their computing power to the network. Ethereum currently uses a proof-of-work (PoW) consensus algorithm, which is designed to protect the integrity of the network and ward off attacks. This algorithm also establishes the difficulty and rules by which the miners do their work.

The number of nodes is expected to grow significantly as Ethereum transitions from a PoW consensus algorithm to proof-of-stake (PoS), which is expected to improve the ease at which participants can validate transactions and secure the network. The more nodes there are, the greater the trust resulting from decentralization, as the nodes can ensure that there is no manipulation taking place on the network. As long as at least 50% of the system participants are honest, the network can overcome attempts at manipulation.

Supply and demand

While Bitcoin has a finite supply of 21 million coins, Ethereum has taken a different approach. There is no cap on the total ETH supply, despite a 2018 Ethereum Improvement Proposal (EIP) submitted by Buterin to limit the number of coins to 120 million — a proposal that to this day has not been approved. There is, however, an annual limit.

According to the Ethereum Foundation, ETH is “issued at a constant annual linear rate via the block mining process” of 0.3 times the total ETH purchased in the 2014 crowdfunding campaign. Considering that roughly 60 million ETH was issued in the presale, no more than 18 million ETH can be issued each year. That annual amount, however, can be issued indefinitely.

Despite the fact that the ETH supply will continue to expand, the rate at which the supply increases will decline over time due to the fixed nature of the coin’s issuance. As a result, Ether is not considered an inflationary asset; on the contrary, it fits the bill of a disinflationary currency, meaning that its inflation will lessen over time.

Buying ETH

Thanks to Ether’s status as one of the top two cryptocurrencies, it is not too difficult to buy ETH. Major crypto exchanges including Coinbase, Binance, Kraken, Gemini, Huobi, FTX, Bitfinex and many more offer countless trading pairs that feature ETH, from ETH/BTC to ETH/USD and beyond. In addition, many of the mainstream payments platforms that are expanding into cryptocurrencies support Ether transactions, including PayPal and Shopify, to name a couple.