Ether Price Dips Amid Regulatory Concerns, Network Woes, and Widespread Web3 Hack
Summary:
The price of Ether (ETH) fell after failing to break above a key resistance level. The downturn was influenced by negative comments from regulators, a significant hack in the Web3 ecosystem, declining activity in the Ethereum network, and criticism from a former Ethereum Foundation developer. Analysts also note declining volumes of Ethereum's decentralized apps and an increase in high network fees. It's stressed that the existing regulatory laws are applicable to the cryptocurrency securities market, following the U.S. Securities and Exchange Commission's denial of a petition from Coinbase.
The value of Ether (ETH) dipped on December 15th, after its unsuccessful attempt to surpass the resistance level at $2,320. The cause of this recent downturn in price is attributable to a combination of regulatory comments, a widespread Web3 system hack, a decrease in Ethereum network activity and criticism by a former developer from the Ethereum Foundation.
Investigating the larger time frame provides a different viewpoint on the relatively minor fluctuations in daily closing price of 7.6% over the preceding 11 days. There was a 40% surge in Ether's value before it landed in the current $2,190 - $2,360 range. The absence of any distinct trend might simply signify the period of accumulation.
Gary Gensler, the chairman of the SEC, delivered an address while Ledger was experiencing a significant hack. The ETH price was also influenced by the excitement around exchange-traded funds (ETFs) in the spot market, particularly after the global asset managing giant BlackRock, revealed its intentions of launching a spot Ether ETF on November 9. The momentum multiplied on November 21 when the probability of a Bitcoin (BTC) ETF being approved by January 10 was reiterated as being 90% by Bloomberg’s ETF analysts.
However, the regulatory environment shifted on December 15, with the U.S. Securities and Exchange Commission (SEC) denying a petition from the Coinbase exchange. Gary Gensler, the SEC chairman, suggested that the existing laws and regulations are applicable to "cryptocurrency securities markets", and emphasized that "now is the right time for regulatory action".
The SEC's recent note mentioned "sizable fraud, abuse, and noncompliance" in the cryptocurrency market, stressing out the benefits of regulating and overseeing intermediaries. Gensler's response to Coinbase's key point of contention about "discretionary rulemaking" was that such measures are "a crucial part of our adherence to the congressional mandate."
The Ledger connector hack on December 14 also contributed to Ether's price slide. The attackers used phishing mechanisms to access the Node Package Manager JavaScript account of an ex-Ledger employee. According to ConsenSys’ zero-knowledge rollup team, Linea, the major wallet provider MetaMask, and the entire Ethereum Virtual Machine (EVM) ecosystem were also impacted. While the issue was addressed in less than an hour, it revealed how heavily the Web3 ecosystem is reliant on corporate-developed code. Generally, this breach dented investors' confidence in the decentralized finance (DeFi) sector.
Ethereum dApps experienced high network fees due to the network's inherent problems, opening avenues for competitor blockchains like Solana (SOL) and Avalanche (AVAX). Ethereum's average transaction fee of $9.90 is not feasible for most transactions, compelling users to navigate the additional complexity and risks posed by layer-2 solutions.
Ethereum's struggles are visible in its total value locked (TVL), which has decreased by 5% since November 30, settling at its lowest level since August 2020, at ETH 12.26 million. Solana’s TVL saw a 14% increase over the same period. However, not all DApps require large deposits and many DeFi apps are streamlining their liquidity pools. Hence, analysing transaction volumes is also crucial.
The volumes of decentralized apps on Ethereum have remained under the $1.8 billion mark for more than a month, while Solana experienced a substantial increase to $700 million daily. Avalanche, with its daily average of $250 million, may seem small compared to the major blockchains, but it marks a 250% growth since late November.
A social media post by former Ethereum Foundation developer, Lane Rettig, criticising the Ethereum project has also unnerved Ether investors. This came when Ether was already grappling with regulatory pressures and declining network activity, possibly exacerbating its waning appeal.
This piece does not serve as investment advice or a recommendation. Every financial endeavour involves risk, thus readers should carry out their own due diligence before making any decisions.
Published At
12/16/2023 12:47:20 AM
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