Ether’s price has remained range-bound between $1,800 and $1,900 since July 21, creating uncertainty among investors despite recent positive developments. One significant development is PayPal’s foray into the world of cryptocurrencies, which could potentially pave the way for mainstream adoption of Ethereum. However, concerns about centralization and the loss of control over personal assets have also emerged.
In addition to PayPal’s entry, there has been a surge in applications for Ether-based exchange-traded funds (ETFs) filed with the United States Securities and Exchange Commission. This mirrors a trend observed in major asset management firms seeking to establish Bitcoin ETFs. These developments indicate a growing interest in cryptocurrencies and Ethereum’s potential as an investment vehicle.
Despite these positive developments, the Ethereum network is facing challenges related to high gas fees. Gas fees refer to the costs associated with transactions on the network, including those involving smart contracts. For the past two months, the average transaction fee has exceeded $4, which has limited the demand for decentralized applications (DApps) built on Ethereum.
The decline in demand for DApps is evident in the decreasing total value locked (TVL) of deposits on the Ethereum network. Data from DefiLlama shows that the TVL level has reached its lowest point in the past three years. While there may have been some fluctuations in this trend over the past week, the overall decrease in Ether deposits is significant, dropping from 14.75 million three months ago to around 12.9 million currently.
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To determine whether the decline in TVL correlates with a decrease in Ethereum’s user base, investors should monitor the utilization of DApps. It is important to note that certain DApps, such as gaming platforms and marketplaces, do not require substantial deposits. However, the number of active addresses using DApps has decreased by 25% in the last 30 days. This decline suggests that investors may be dissatisfied with the high transaction costs associated with the Ethereum network.
Analyzing Ether derivatives can provide insights into the support level at $1,800 and the sentiment of ETH investors. Quarterly futures contracts, which are popular among whales and arbitrage desks, typically trade at a slight premium to spot markets. This premium reflects sellers demanding more money to delay settlement. In healthy markets, ETH futures contracts should trade at a 5 to 10% annualized premium, indicating a state of contango.
Based on the current futures premium, professional traders in the Ether market have been unable to adopt a bullish stance since July 16. The 5% premium level hovers on the edge of a neutral-to-bearish threshold, suggesting an equilibrium in demand between leveraged long and short positions.
Coinbase’s Base network, unveiled on August 9, could pose a challenge for Ether to surpass the $1,900 mark. Several development teams within the Ethereum ecosystem have announced their offerings for the Base network, which currently includes a version of the decentralized exchange Uniswap. Despite the bullish prospects for Ether, including the potential approval of an ETF and the user base facilitated by PayPal’s stablecoin, Ethereum faces competition from other smart contract platforms and well-funded challengers. This competitive landscape introduces uncertainty regarding the resilience of the $1,800 support level.
In conclusion, while recent developments indicate positive momentum for Ethereum, uncertainties surrounding its price range, network challenges, and competition from other platforms warrant caution. Investors should closely monitor the utilization of DApps, futures market sentiment, and the progress of new initiatives like Coinbase’s Base network to assess Ethereum’s future trajectory.
