Ether Traders Rally Amidst Sharp Dips: Ethereum's Future Amid Competing Blockchains
Summary:
As Ethereum's Ether (ETH) experienced a 9.5% dip on December 11, the cryptocurrency community is speculating if the network can reignite bullish growth in Ether price. This scrutiny arises amidst Ethereum's high transaction fees, which are stimulating competitor chains. Surprisingly, only $86 million worth of long ETH futures contracts were forced to close, implying that most of the reductions were traders' decisions. Despite a lower increase in decentralized exchange (DEX) volumes, Ethereum remains the dominant player. Ultimately, given the offsetting demand from scaling solutions for the declined TVL, there is no immediate sign of an upcoming price correction.
Ether (ETH) witnessed a sharp dip of 9.5% in the initial hours of December 11, but was quickly buoyed up as buyers rallied to hold the $2,220 support level. The crypto community is now speculating whether Ethereum infrastructure can reignite a bullish upswing in Ether price. Notably, this plunge parallels the overarching crypto market trend, as Ether's 6.7% 24-hour dip mirrors Bitcoin's (BTC) 5.4% and XRP's 6.6% losses.
Are futures markets solely responsible for Ether's value drop?
Commonly, excessive trading leverage is held accountable for such price fluctuations that are partially reversed within minutes. However, a mere $86 million worth of long Ether futures contracts were forcefully closed in the last day. This is minor compared to the $7.8 billion existing interest in Ether futures, suggesting that most of the $600 billion drop in available positions was due to traders' self-actions.
Over the past 24 hours, Ether futures open interest on Binance fell by 6.8%, as indicated by Coinglass data, with a similar effect on Bybit and OXK exchange, where Ether futures open interest dropped by 5.2% and 6.7%, respectively. In contrast, CME and Deribit saw a steady open interest, hinting that the blow was majorly absorbed by retail traders.
Many may argue that this correction was beneficial as it drove out retail traders employing high leverage, either through their stop losses or through exchanges' liquidation mechanisms. However, for Ether investors, the $2,400 mark attained on December 9 seems further away now.
Rising Ethereum network costs stimulate competing chains
At present, the average transaction fee for the Ethereum network is a hefty $7.90, making it unfeasible for most users and applications. This fee also strains layer-2 transactions, even when they are batched to cut costs. These actions are crucial to ensure optimal security during concurrent processing.
Investors and market analysts are reasoning that Ethereum's steeper fees indicate success rather than drawback, as the ecosystem's layer-2 mechanisms have swelled to an impressive $15.9 billion in total value locked (TVL). Arbitrum One (ARB) and Optimism Mainnet (OP) lead the pack with a combined 80.9% market share, as per l2beat data. Purpose-driven blockchains like dYdX v3 and Immutable X also contribute significantly.
However, in terms of TVL, the Ethereum network has been ceding market share to its rivals. For instance, since November 30, BSC Chain's TVL in terms of BNB decreased by 2%, while the Solana network saw a 5% TVL rise in SOL. During the same span, Ethereum network experienced a 7% drop, hitting a three-year low at 12.1 million ETH.
New EVM-compatible scaling solutions, such as Polygon (MATIC), could have offset the TVL drop in Ethereum. To check if base-layer competitors also gained, one must look at the market share of Ethereum network's decentralized exchanges (DEX).
Though Ethereum remains the dominant player despite its higher fees, its weekly 26% increase in DEX volumes is considerably lower than those of Solana, BSC Chain, or Avalanche, which saw gains of 142%, 47%, and 193%, respectively. Most of these recent DEX volume increases took place outside Ethereum's layer-2 ecosystem.
Nonetheless, the data does not necessarily suggest that Ether's peak at $2,400 on December 9 was spurred by inflated derivatives leverage. Plus, given the Ethereum network's decreased TVL appears to be balanced out by demand from its scaling solutions, the December 12 price tumble might not hint at a future price correction.
This news piece does not offer investment advice or endorsement. Every investment or trading decision carries risk, and readers should independently verify information before making a choice.
Published At
12/11/2023 11:18:32 PM
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