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Three key indicators are behind the continued bearish trend in ETH, and the data fails to identify an immediate catalyst for a price breakout.
Ethereum’s price has been stuck below $1,920 for the past 16 days, which is especially worrisome as the last breakout attempt on May 6 lasted less than 24 hours. Aside from this short-term price spike, Ethereum’s price journey below $1,920 was initiated on April 21, over 30 days ago.
The $8.80 average transaction fee on the ethereum network can probably be blamed for the drop in investor appetite, but the macroeconomic environment has also played an important role. On May 22, JPMorgan Chase CEO Jamie Dimon said it was impossible to predict the outcome of the Federal Reserve’s monetary policy aimed at curbing inflation.
According to CNN, Dimon added:
“You can already see lending tightening because the easiest way for a bank to save capital is not to make another loan.”
The uncertainty associated with the confrontation between the Joe Biden administration and the US Congress over the US national debt ceiling is a likely reason for the deterioration in institutional investor sentiment towards cryptocurrencies. According to the latest CoinShares “Digital Asset Funds Flows Report”, the outflow of funds from digital asset investment products over the past five weeks amounted to $232 million.
In addition, there are two indicators that affect the price of Ether and signal a decrease in demand for its decentralized financial ecosystem, in addition to weak buying activity from professional traders using leverage.
Ethereum Total Deposits Stable, But There’s a Catch
The limited data processing capabilities of the Ethereum network have led to high gas fees, which significantly reduces the demand for the use of smart contracts. Over the past five weeks, the average transaction fee has remained above $8, although no impact was felt at first glance.
The total amount of deposits of Ethereum network applications in ETH. Source: DefiLlama
The total amount of value locked (TVL) on the network remained stable at 15.1 million ETH compared to four weeks earlier, but it is approaching its lowest level since August 2020. In comparison, TVL on the bnb Smart Chain network in terms of BNB remained almost unchanged over the same period, while TRX deposits on the tron network decreased by 12%.
BNB smart chain overturns Ethereum’s dex lead
Ethereum has historically been the absolute leader in decentralized exchange (DEX) volume, but that all changed in the week ending May 21st.
Weekly DEX volume by chain. Source: DefiLlama
The Ethereum network’s share of the DEX market dropped sharply from 75.5% on March 5 to 22.3% on May 21. At the same time, the BNB smart chain became the largest beneficiary, increasing to 61.1% from 5.6%.
The number of active addresses interacting with decentralized applications (DApps) is also in decline. The top 12 DApps running on the Ethereum network have seen an 11% drop in active addresses over the past 30 days, possibly reflecting investor dissatisfaction with high transaction costs.
30-day DApp activity on the Ethereum network. Source: Dapp Radar
Data shows de-leveraging of derivatives traders
Quarterly Ether futures are popular with whales and arbitrageurs. However, these fixed-month contracts typically trade at a small premium to spot markets, indicating that sellers are asking for more money to delay settlement.
As a result, ETH futures contracts in healthy markets should trade at an annual premium of between 4% and 8%, a situation known as contango that is not unique to cryptocurrency markets.
Annual premium for 2-month ETH futures. Source: Laevitas
According to the futures premium, known as the underlying indicator, professional Ethereum traders have avoided leveraged longs (bullish bets) for the past four weeks. Moreover, even a short-term rally towards $2,000 on May 6 was not enough to turn these whales and market makers into bullish sentiment.
In short, these three indicators signal bearish sentiment – namely, record low DEX market share, a decrease in the number of addresses participating in DApps, and no demand for leveraged buying.
Investors may have expected some kind of announcement from Ethereum inventor Vitalik Buterin’s speech at Edcon 2023 in Montenegro, but this did not happen – the fact is that in the short term there are no inevitable factors that could justify a sustained rally above $1,920.
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