Ether’s Price Surge Raises Concerns About Sustainability
The price of Ether (ETH) experienced a significant surge of 31.3% from March 10 to March 18, coinciding with the Federal Reserve’s injection of $300 billion to address Silicon Valley Bank’s insolvency. Since then, Ether’s price has consistently remained above $1,600.
However, doubts have emerged among investors regarding Ether’s ability to sustain this support level. The prevailing bearish sentiment in the cryptocurrency space and declining metrics on the Ethereum network contribute to these concerns.
Over the past six months, the cryptocurrency sector has faced negative developments. Financial troubles at the Digital Currency Group (DCG), the owner of Grayscale mutual fund manager, have raised concerns of potential liquidation of the $4.8 billion worth of ETH deposits held in the Grayscale Ethereum Trust to address DCG’s debts.
Additionally, legal action from the United States Securities and Exchange Commission (SEC) against major exchanges Binance and Coinbase, as well as the uncertainty surrounding futures-based Ether exchange-traded funds (ETFs), have further dampened investor enthusiasm.
On-Chain Metrics Indicate Declining Demand
Ethereum’s on-chain metrics reveal a stagnation in demand in terms of ETH investments and smart contract transactions.
The number of Ethereum addresses holding at least $1,000 worth of ETH deposits has reached its lowest level in almost six months, despite Ether’s previous peak price of $2,130 in mid-April.
High average transaction fees, which have remained above $4 for the past six months, have deterred potential investors. This has resulted in no significant increase in the total number of investors when using the $1,000 threshold as an indicator.
Moreover, data on decentralized application (DApps) activity on the Ethereum network confirms a lack of new users. The average number of active addresses across the top Ethereum network DApps has decreased by 4% compared to the previous month.
The decline in active users extends to various sectors, including cryptocurrency games, decentralized exchanges, nonfungible token marketplaces, and Web3 services. This lack of network activity limits the catalysts for a price recovery, such as potential network upgrades and implementations that could reduce costs or improve user privacy.
Competitors Capitalize on Stablecoin Volumes
Recent developments have disappointed Ethereum enthusiasts. Visa has integrated Solana blockchain settlement capabilities, and Circle’s USD Coin (USDC) has introduced native accounts and transfers on the Base chain. In response, Coinbase has announced support for converting old, bridged versions of USDC to the new format.
Rune Christensen, co-founder of MakerDAO, has proposed developing the upcoming native chain of the decentralized finance project based on Solana’s codebase, despite its longstanding association with Ethereum.
Given the bearish sentiment in the cryptocurrency market, including legal challenges faced by exchanges from the SEC and diminishing interest in cryptocurrencies, Ether’s price dipping below the $1,600 support level becomes more likely.
Hot Take
The sustainability of Ether’s price surge remains uncertain due to various factors such as negative developments in the cryptocurrency sector, declining on-chain metrics, and the rise of competitors. To ensure its long-term success, Ethereum needs to address challenges like high transaction fees and attract new users through network upgrades and improved user privacy.
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