Ether Struggles Amid Market Corrections, Regulatory Uncertainty, and Reduced Network Activity
Summary:
Ether (ETH) is grappling with a declining trend, struggling to maintain the $3,000 support level following a 4.1% dip in two days. Several factors like the delayed US Ethereum spot ETF, decreased network usage, and a reduced ETH burn rate have influenced the bearish momentum, leading to a 15% fall in Ether's value since April. External scenarios such as the remarks of the Boston Federal Reserve Chair, Susan Collins, on persistent inflation and increased stock buybacks are further intensifying the situation. A 3% correction in the total cryptocurrency market capitalization and an underperformance compared to other altcoins are contributing to Ether's plight. Recent on-chain analytics indicate a decline in Ethereum's network health, suggesting an uncertain future for the cryptocurrency.
Ether (ETH), the popular cryptocurrency, is grappling to hold onto the crucial $3,000 support mark, recording a dip of 4.1% within a span of just 48 hours. Its downward trajectory seems to be driven by multiple factors such as the postponement of the US Ethereum spot exchange-traded fund (ETF), decrease in network utilization, and a prominently observable downswing in the ETH burn rate. Consequently, Ether's valuation has seen a 15% slump since April.
Remarks from the Chair of Boston Federal Reserve, Susan Collins, implying that persistent inflation could compel the central bank to sustain elevated interest rates over a lengthy period, have further dampened investor enthusiasm. According to Yahoo Finance, Collins, on May 8, underscored the necessity for moderated economic progression to lower demand. With interest rates hovering over inflation, the attractiveness for individuals and enterprises to opt for consumption or production loans diminishes.
While this scenario could potentially negatively impact corporate revenues, thus favoring substitution assets like cryptocurrencies, it may also lead investors worried about a substantial recession to drift towards secure income and cash slots. The rise in stock buybacks in the American market, fueled by cash-rich companies, further muddies the waters for Ether's comeback journey. Even as buybacks curtail selling pressure and offset a sluggish economy, they potentially pose a hurdle for earnings growth.
Ether's market behavior could be attributed to the 3% downturn in the total cryptocurrency market capitalization since May 6. However, other alternative coins such as BNB (BNB), Tron (TRX), Cardano (ADA), and Litecoin (LTC) have outperformed Ether by no less than 3% during this timeline. Against Bitcoin (BTC) also, Ether's price trailed by 1.5%. This indicates that there are Ether-specific elements having an adverse effect on its price.
The probability of a US Ethereum ETF endorsement took a hit following SEC's deferment of a verdict on the Invesco and Galaxy Digital proposal on May 6, pushing the deadline to July 2024. Adding to this, the refusal by the US SEC Chair, Gary Gensler, to comment on Ethereum's potential classification as a security during his stint on CNBC's Squawk Box on May 7, significantly dented investor faith in the ETF. Gensler's appearance coincided with six cryptocurrency-related lawsuits witnessed in 2024.
On-chain data analytics for Ethereum have painted a bleak picture in recent times. Sound.money points out that Ether's burn mechanism has plummeted to its lowest level in 2024.
The EIP-1559 protocol demands a certain part of the gas fees per transaction to be burned, thus a drop in network demand leads to a surge in ETH growth supply. Most recent data exhibits an ETH burn of 4,853 in a week, a striking decrease from the ETH 17,628 issued over the same duration. Although the ETH supply's 12,774 increment over the past week translates to a mere 0.57% year-on-year inflation, the lessened utility of the Ethereum network is a cause for concern, particularly considering its second-layer scaling solutions.
The reduced demand for Ethereum has rippled through its ecosystem, impacting ventures such as Arbitrum, Base, Polygon, and ZkSync Era whereas Solana and Thorchain have recorded heightened activities. Likewise, Sui and Avalanche have faced comparably lesser decline in decentralized exchange (DEX) volumes compared to their counterparts.
The exact reasons for investors offloading Ether remains veiled. However, a discernable loss of faith, concerning the US approval for an Ethereum spot instrument, and the recent decline in Ethereum's network health metrics can provide a glimpse into Ether's price plunge. Uncertainties stemming from recent regulatory measures against crypto industry figures, including Consensys, may also factor in Ethereum's weakened valuation.
This piece does not offer investment counsel or suggestions. Each investment and trading action is bundled with risk, and it is recommended for readers to do their own comprehensive research before making an informed decision.
Published At
5/8/2024 10:50:52 PM
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