Ethereum's drawdown risk and the potential for price breakthroughs: a re-examination of the 2021 pattern

Ethereum (ETH) is currently exhibiting macroeconomic conditions reminiscent of the major rally in 2021, and market participants are facing a critical phase where risk management related to drawdowns is essential. A drawdown refers to the decline from an asset’s previous peak to its current value and plays a vital role in investors’ risk assessment. According to Cointelegraph reports, multiple analysts have identified a cyclical pattern linking global liquidity, the US small-cap stocks, and ETH price fluctuations, suggesting that this pattern could unfold again.

Global Liquidity and Drawdowns: Correlation of Macro Economic Patterns

In 2021, Ethereum experienced a notably strong upward phase. After global liquidity surpassed a critical threshold, ETH surged by 226%. During this period, changes in liquidity conditions had influence beyond mere technical indicators, dominating the long-term trend formation of high-beta assets.

Current ETH accumulation addresses indicate an unrealized price near approximately $2,720, reinforcing structural support. The rise in this realized price suggests that long-term holders are on average holding higher purchase prices, increasing the likelihood that support will hold even during a drawdown. This environment driven by global liquidity clearly reflects the breakout pattern seen in Ethereum in 2021.

The Impact of Russell 2000’s Rise on ETH Price Formation

Crypto analyst Sykodelic emphasizes a cyclical pattern connecting global liquidity, the Russell 2000 index, and Ethereum’s price movements. This sequence consists of three stages: first, global liquidity breaks out; next, the Russell 2000 follows; and finally, ETH rises with a delay.

The current monthly chart appears to show this sequence unfolding again. Global liquidity has already completed its breakout, followed by the Russell 2000. Historically, ETH tends to lag behind this movement, with breakouts typically observed several weeks later. In 2021, ETH began a major rally approximately 119 days after the Russell 2000 confirmed its breakout. Applying this time lag suggests a potential ETH breakout around March 2026.

The Russell’s monthly candle closely matches previous cycles, indicating a similar risk-on market regime. Max, CEO of BecauseBitcoin, pointed out on X (formerly Twitter) that the Russell 2000 has historically led Ethereum into price discovery phases. With the Russell reaching a new all-time high of 2,738 recently, this leadership could support ETH’s upward movement again in the coming weeks—assuming this correlation remains intact.

Why $2,720 Supports and Limits Drawdowns

Support levels are crucial in risk assessment for drawdowns. On-chain data from CryptoQuant shows that ETH accumulation addresses’ realized prices continue to trend upward and are currently near approximately $2,720. Historically, realized prices have served as strong support levels and have not been breached during past drawdowns.

The proximity of the realized price to the spot price indicates that, even in volatile environments, institutional investors and whale addresses continue accumulating. If ETH revisits this zone, analysts estimate that the downside could be limited to about 7%, with a potential local bottom around $2,720. This level also aligns with external liquidity zones, increasing the likelihood of a trend reaction if tested.

On-Chain Data Indicating Investor Accumulation Activity

On-chain data clearly indicates ongoing accumulation activity. The rising realized price of accumulation addresses suggests holders are continuing to buy during drawdowns. This reflects bullish market psychology and indicates the presence of investors maintaining a long-term bullish stance despite price declines.

Liquidity conditions are more critical than short-term technical indicators and can determine the long-term trend formation of high-beta assets like ETH. Similar accumulation patterns were observed during Ethereum’s 226% surge from March to November 2021. The re-emergence of this pattern now is an important signal for market participants to watch closely.