The price of Ether (ETH) recently encountered significant resistance at $1,920 following a 17.5% surge between June 15 and June 22. Several factors contributed to this limited upside, including deteriorating macroeconomic conditions, increased regulatory pressures on cryptocurrencies, and a decrease in demand for decentralized applications (DApps) on the Ethereum network.
On June 26, a federal judge denied a motion from Binance that could have prevented the United States Securities and Exchange Commission (SEC) from making public statements related to the case. This decision added to the regulatory uncertainties surrounding cryptocurrencies and potentially impacted investor sentiment.
Furthermore, HSBC Asset Management’s mid-year outlook warned of an economic downturn in the U.S. in the fourth quarter and an impending European recession in 2024. The report also highlighted an increase in corporate defaults, further indicating worsening macroeconomic conditions.
In line with these concerns, Gita Gopinath, the chief economist of the International Monetary Fund (IMF), recommended that central banks maintain high interest rates for an extended period. This suggestion may impact investor behavior and contribute to the cautious sentiment surrounding risk-oriented assets such as Ether.
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In addition to the macroeconomic headwinds, the demand for DApps on the Ethereum network experienced a decline, with gas fees dropping by 60%. The average transaction cost decreased from $9 to $3.7 within four weeks, indicating reduced activity. DApp active addresses also dropped by 27% during the same period, adding to the negative sentiment surrounding Ether.
While Uniswap and MetaMask Swap witnessed a decline in activity, some non-fungible token (NFT) marketplaces, including OpenSea, Blur, Manifold, LooksRare, and Unick, registered an increase in user influx. However, despite this mixed performance, the total value locked (TVL) in Ethereum smart contracts reached its lowest level since August 2020, declining by 6.9% between April 28 and June 28.
To assess the likelihood of Ether breaking above the $1,920 resistance, it is crucial to examine Ether futures and options markets. Ether quarterly futures, preferred by large investors and arbitrage desks, typically trade at a premium to spot markets due to additional fees. However, the futures premium, known as the basis indicator, currently remains below the neutral threshold of 5%, suggesting professional traders are cautious about placing leveraged long bets on Ether.
Analysis of the ETH options market using the 25% delta skew indicator, which compares call and put options, provides additional insights. A positive delta skew indicates fear in the market, while negative skew reflects excitement. Presently, the skew indicator sits at a balanced demand for options, indicating neutral sentiment.
Considering these derivative metrics, declining TVL, and reduced DApp usage, bears seem better positioned to defend the $1,920 resistance level. Moreover, the negative macroeconomic conditions and regulatory news contribute to the prevailing unease surrounding risk-on assets like Ether.
While this does not necessarily mean that Ether will retest $1,750, breaking the $1,920 level remains a significant challenge for ETH bulls, as multiple attempts between June 21 and June 25 failed.
In conclusion, the price of Ether currently faces multiple headwinds, including worsening macroeconomic conditions, regulatory pressures, and reduced demand for DApps on the Ethereum network. These factors, coupled with the resistance below $2,000, make it challenging for ETH bulls to gain momentum in the short term. However, it is essential to note that cryptocurrency markets can be highly unpredictable, and investors should exercise caution and consider various factors before making any investment decisions.
