Ethereum (ETH) investors were brimming with optimism ahead of the Federal Reserve’s latest interest rate announcement, hoping for a rally toward the $4,500 mark. However, after a modest 25-basis-point (bps) rate cut was announced, the cryptocurrency saw its price dip by 4.5%, dashing hopes for a breakout and raising concerns about its short-term trajectory.

Unlike the market’s bullish response to a previous 50-bps rate cut, this smaller adjustment failed to generate the same enthusiasm. Earlier this year, similar Fed actions had spurred notable rallies across the crypto space, including Ethereum. But yesterday’s decision sent ETH tumbling from $3,890 to $3,624 before a slight recovery.

Several on-chain metrics suggest that this recovery may be short-lived. One key indicator is the price-to-Daily Active Addresses (DAA) divergence, which tracks user engagement alongside price movements. When the DAA divergence is positive, it signals increased user participation—a bullish sign for price momentum. However, Ethereum’s DAA divergence has dropped to -98.28%, indicating a sharp decline in user engagement and casting a bearish outlook for the cryptocurrency.

Another concerning metric is the Coinbase Premium Gap, which measures the price difference between Ethereum’s trading pairs on Coinbase and Binance. A positive premium often indicates strong buying activity from U.S.-based investors, reflecting heightened demand. Conversely, a negative gap suggests declining interest or increased selling pressure.

Currently, the Coinbase Premium Gap has fallen to -1.96, signaling that U.S.-based demand for Ethereum is waning. This decline, coupled with the fallout from the Fed’s rate decision, points to heightened selling pressure, particularly from institutional and retail investors.

Ethereum’s price struggles are further compounded by technical analysis. A head-and-shoulders pattern has formed on the 4-hour chart—a classic signal of a potential trend reversal from bullish to bearish. This formation typically features a price rise (left shoulder), followed by a peak (head), and a subsequent decline (right shoulder). Once the price breaks below the neckline, a bearish trend is likely to follow.

Adding to the concern, trading volume around Ethereum has decreased significantly, supporting the bearish implications of this pattern. If the current conditions persist, Ethereum’s price could drop further to $3,501.

Despite the current bearish sentiment, there are pathways for a recovery. If trading volume picks up and buying pressure intensifies, Ethereum may regain upward momentum. In such a scenario, the cryptocurrency could reclaim $4,109 and potentially make a run toward $4,500.

For now, the market appears cautious, with both on-chain metrics and technical indicators painting a challenging picture for Ethereum. As the broader crypto market continues to digest the Fed’s policy direction and other macroeconomic factors, ETH’s path forward remains uncertain. The coming days will likely reveal whether this dip is a temporary setback or the start of a prolonged bearish phase.