Ether, the native cryptocurrency of the Ethereum network, experienced a significant surge in price during the period of March 10 to March 18. This surge occurred concurrently with the Federal Reserve injecting $300 billion to address the insolvency of Silicon Valley Bank. Since then, Ether’s price has consistently remained above $1,600.
Despite this positive development, investors are growing skeptical about Ether’s ability to maintain this support level. The prevailing bearish sentiment in the cryptocurrency space, along with declining metrics on the Ethereum network, contribute to this doubt.
Over the past six months, the cryptocurrency sector has faced several negative developments. The Digital Currency Group (DCG), the owner of the Grayscale mutual fund manager, has encountered financial troubles. This has raised concerns that a portion of the $4.8 billion worth of ETH deposits held in the Grayscale Ethereum Trust might be liquidated to address DCG’s debts.
In addition, two major global exchanges, Binance and Coinbase, are currently facing legal action from the United States Securities and Exchange Commission (SEC). This regulatory scrutiny adds to the overall uncertainty surrounding the cryptocurrency market.
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Initially, there was excitement among investors when requests for futures-based Ether exchange-traded funds (ETFs) emerged. However, it is important to note that these instruments would not involve actual ETH coins if approved, unlike spot ETFs.
On-chain metrics for Ethereum indicate declining demand, both in terms of ETH investments and smart contract transactions. The number of Ethereum addresses holding a minimum of $1,000 worth of ETH deposits has reached its lowest level in nearly six months. This is concerning, considering that Ether’s price reached a peak of $2,130 in mid-April, which should have attracted new investors.
The stagnation in investor interest can be attributed, in part, to Ethereum’s average transaction fee remaining above $4 for the past six months. Despite fluctuations in network staking metrics, there appears to be no increase in the total number of investors when using the $1,000 threshold as a proxy.
Furthermore, data on decentralized application (DApps) activity on the Ethereum network confirms the lack of new users. Even excluding the significant decline in the Uniswap NFT Aggregator, the average number of active addresses across the top Ethereum network DApps decreased by 4% compared to the previous month. This decline is observed across various sectors, including cryptocurrency games, decentralized exchanges, nonfungible token marketplaces, and Web3 services.
Token activity on the Ethereum network also reflects the limited number of active users. With the exception of stablecoins and Wrapped ETH, no project has recorded more than 13,000 unique receiver addresses over the past week. This suggests that Ethereum’s network is currently constrained by its high transaction fees, which in turn limits user participation.
Competitors like Solana are capitalizing on the stablecoin volumes. Visa recently incorporated Solana blockchain settlement capabilities, while Circle’s USD Coin introduced native accounts and transfers on the Base chain. Coinbase also announced its intention to assist partners in converting old, bridged versions of USDC to the new format. Additionally, Rune Christensen, co-founder of MakerDAO, proposed developing the project’s upcoming native chain based on Solana’s codebase, despite its previous association with Ethereum.
Considering these factors, along with the bearish sentiment in the cryptocurrency market and diminishing interest in cryptocurrencies, there is an increased likelihood of Ether’s price declining below the $1,600 support level.
It is important to note that this article is for general information purposes only and should not be considered legal or investment advice. The views and opinions expressed in this article are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
