3 reasons why Ethereum price could struggle at the $1.9K level

Cryptocurrency

Since May 12, Ether (ETH) price has been struggling to sustain its $1,800 support level as investors face pressures from a worsening crypto regulatory environment and the Ethereum network’s high gas fees. Also negatively impacting Ether’s price are 3 indicators signaling reduced demand for its decentralized applications (DApps) and a lack of leverage buying demand from professional traders.

Regulators signal their plan to further limit crypto intermediaries

According to court documents filed on May 15, the U.S. Securities Exchange Commission (SEC) has given a formal response in court in relation to Coinbase’s petition for clear crypto regulation. The SEC stated that any rulemaking may take years and that enforcement actions will continue in the meantime.

On May 16, the Economic and Financial Affairs Council of the European Union — comprising finance ministers of all member states — approved the highly-anticipated Markets in Crypto-Assets (MiCA) regulation, which will come into effect by mid-2024.

Some argue that the MiCA facilitates businesses growth in the region, while others focus on the privacy risks for personal users’ data, and the risks imposed for non-custodial solutions, including decentralized finance (DeFi) applications.

The drop in DApp deposits is concerning

The Ethereum network is experiencing problems caused by surging gas fees, the cost associated with transactions, including those performed by smart contracts. For the past 4 weeks, the average transaction fee has stood above $9, which severely limited the demand for DApp usage.

Total deposits on the Ethereum network in Ether terms plunged to their lowest levels since August 2020. Such an analysis excludes the effects of native Ethereum staking, which recently started to allow withdrawals.

Ethereum network applications’ total deposits in ETH. Source: DefiLlama

According to DefiLlama data, Ethereum DApps reached 14.9 million ETH in total value locked (TVL) on May 16. That compares with 16.5 million ETH two months prior, a 10% decline. As a comparison, TVL on BNB Smart Chain in BNB terms was essentially flat in the same period, while Polygon network’s (MATIC) deposits increased by 29%.

BNB Smart Chain attempts to take a lead in DEX volume

Ethereum might have been the absolute leader in DEX volumes since inception, but this position is being challenged. Ethereum’s market share by volume on decentralized exchanges (DEXs) peaked at 75% in the week ending March 5 but steadily declined to its lowest level ever, at 39.6% in the week ending May 14.

Weekly DEX volume by chain. Source: DefiLlama

Gainers on DEX trading volumes were Arbitrum, increasing to 14% from 7%, and BNB Smart Chain, growing to 31% from 5.6% since March 5. One might argue that the success of the Ethereum network’s scaling solutions reflects bullishness for Ether’s price, but that relationship is not so direct.

Related: Updated European tax directive requires reporting on all crypto asset transfers

Data shows pro traders turning bearish

Ether quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight 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 a 5 to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.

Ether 3-month futures annualized premium. Source: Laevitas

Ether professional traders have avoided leverage longs (bullish bets) since early April. Moreover, the current 1% ETH futures premium is on the edge of becoming negative, known as backwardation — if confirmed, this is an alarming red flag as bearish demand dominates the scene.

In short, those 3 indicators signal the $1,900 resistance will be hard to break in the short-term, namely the reduced TVL, record-low DEX market share, and lack of leverage buying demand. For now, Ether bears are in control, favoring the odds of a price correction.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Products You May Like

Articles You May Like

Goodbye to Berlin, Europe’s self-effacing capital
Warren Buffett’s Berkshire Hathaway scoops up Occidental and other stocks during sell-off
The Fed cut interest rates but mortgage costs jumped. Here’s why
Munis sell off as macroeconomic, policy volatility weigh heavily over markets
UK borrowing costs climb as ‘stagflation’ fear stalks gilt market

Leave a Reply

Your email address will not be published. Required fields are marked *