Ether’s price has faced significant challenges recently, with a critical test on Sept. 11 when it dropped to the $1,530 support level. However, in the days following this drop, Ether managed to stage an impressive recovery, surging 6%. This recovery may indicate a pivotal moment for the altcoin, which has suffered losses of 16% over the past month.
Despite this swift recovery, many investors are questioning whether Ether has the potential to climb back to $1,850. To answer this question, it is important to examine the role of ETH derivatives and network activity.
Macroeconomic factors have helped to mitigate investor pessimism surrounding Ether’s price. Inflation in the United States has accelerated for the second consecutive month, reaching 3.7% according to the most recent Consumer Price Index report. This data reinforces the belief that the U.S. government’s debt will continue to rise, leading to higher yields from the Treasury. Scarce assets, like cryptocurrencies, are expected to benefit from this inflationary pressure and expansive monetary policies aimed at bridging the budget deficit. However, the cryptocurrency sector itself is facing challenges.
One major hurdle is the regulatory uncertainty surrounding cryptocurrencies. Binance, one of the largest cryptocurrency exchanges, is facing the possibility of indictment by the U.S. Department of Justice. Binance.US, the American arm of the exchange, is also entangled in legal battles with the U.S. Securities and Exchange Commission, resulting in layoffs and top executives leaving the company. These regulatory hurdles create uncertainty for investors.
Related Post
Additionally, the Ethereum network has been experiencing a decline in its smart contract activity, which is a core aspect of its original purpose. The network is still struggling with high average fees, with fees consistently above $3. This has contributed to a decrease in the number of active addresses for the top Ethereum decentralized applications (DApps) over the past 30 days, with an average decrease of 26%. However, the Lido liquid staking project has seen a 7% increase in its total value locked in ETH terms during the same period. Despite its success, Lido has faced criticism due to its dominance, accounting for 72% of all staked ETH. There are concerns about centralization and the influence of services like Lido.
Vitalik Buterin, co-founder of Ethereum, has acknowledged the need for Ethereum to become more accessible for everyday people to run nodes in order to maintain decentralization in the long term. However, he does not anticipate a viable solution to this challenge within the next decade. This further raises concerns about centralization and the influence of certain projects like Lido.
Looking at derivatives metrics can provide further insights into how professional traders are positioning themselves in the current market conditions. Ether monthly futures typically trade at a 5 to 10% annualized premium, known as contango. However, the premium for Ether futures hit its lowest point in three weeks, standing at 2.2%, indicating a lack of demand for leveraged long positions. Similarly, the options markets can help gauge market sentiment. The 25% delta skew, which measures the imbalance between call and put options, can confirm whether professional traders are leaning bearish or bullish. Despite the successful defense of the $1,530 price level, Ether derivatives traders are displaying reduced interest in leveraged long positions.
While Ether has potential catalysts, such as requests for a spot ETH exchange-traded fund and macroeconomic factors driven by inflationary pressure, the dwindling use of DApps and ongoing regulatory uncertainties create a fertile ground for fear, uncertainty, and doubt (FUD) surrounding Ether’s price. This is likely to continue exerting downward pressure on Ether’s price, making a rally to $1,850 in the short to medium term appear unlikely.
In conclusion, the recovery of Ether’s price following a critical test at the $1,530 support level raises questions about whether it can climb back to $1,850. The regulatory uncertainties and high network fees faced by the cryptocurrency sector, as well as the decline in Ethereum’s smart contract activity, are limiting investors’ appetite for Ether. Additionally, derivatives metrics suggest reduced interest in leveraged long positions. While there are potential catalysts for Ether’s price, the current market conditions make a rally to $1,850 unlikely in the near future.
