Ether (ETH) price experienced a significant decline between Oct. 6 and Oct. 12, reaching a seven-month low at $1,520. Despite a slight rebound to $1,550 on Oct. 13, it is evident that investor confidence and interest in Ethereum have been waning. This downtrend is supported by various metrics, and it raises concerns about the future trajectory of the second largest cryptocurrency.
Some may argue that the recent movement in Ether’s price reflects a broader disinterest in cryptocurrencies. This argument is fueled by the fact that Google searches for “Ethereum” have reached their lowest point in three years. However, it is essential to separate the overall sentiment towards cryptocurrencies from the specific challenges faced by Ethereum.
Interestingly, Ethereum has underperformed the overall altcoin market capitalization by 15% since July. This underperformance suggests that Ethereum’s struggles may not be solely attributable to a general decline in interest for cryptocurrencies. It is crucial to examine the unique factors that contribute to Ether’s current situation.
One significant event that impacted Ether’s price was the remarks made by Cardano founder Charles Hoskinson. Hoskinson alleged that “favoritism” influenced the U.S. Securities and Exchange Commission director William Hinman’s classification of Ether as a non-security asset in 2018. This controversy has cast a shadow over Ethereum and may have contributed to the declining investor confidence.
Additionally, Ethereum staking, which involves participating in the network validation process, has garnered less interest from investors. The yield decreased from 4.3% to 3.6% in just two months, making staking less attractive. Alongside this decrease, there has been an increase in ETH supply due to reduced activity in the burn mechanism, which has reversed the previous scarcity trend.
On Oct. 12, the regulatory concerns surrounding Ethereum escalated after the Autorité de Contrôle Prudentiel et de Résolution (ACPR) highlighted the “paradoxical high degree of concentration” risk in decentralized finance (DeFi). The ACPR report suggests the need for specific rules governing smart contract certification and governance to protect users. These regulatory uncertainties could further dampen investor sentiment towards Ethereum.
To gain insight into the sentiment of professional Ether traders, it is essential to analyze derivatives metrics. Typically, ETH monthly futures trade at a 5 to 10% annualized premium to compensate for delayed trade settlement. However, the premium for Ether futures reached its lowest point in five months on Oct. 12, indicating a lack of demand for leveraged long positions. Even an 8.5% Ether price rally between Sept. 27 and Oct. 1 failed to push ETH futures above the 5% neutral threshold.
Another indicator of decreased interest in Ethereum is the decline in total value locked (TVL). Ethereum’s TVL has decreased from 13.3 million ETH to 12.5 million ETH in the past two months, indicating reduced demand. This decline reflects diminishing confidence in the decentralized finance (DeFi) industry, where Ethereum holds a prominent position.
Furthermore, the diminishing interest is evident in the declining activity of various decentralized applications (DApps). Leading DEX, Uniswap, and the largest NFT marketplace, OpenSea, are experiencing reduced activity. Even the gaming sector, represented by Stargate, shows a decline with only 6,180 active accounts on the network.
While regulatory concerns may not be directly related to Ether’s classification as a commodity, they could have adverse effects on the DApps industry. Moreover, there is no guarantee that key pillars of the Ethereum ecosystem, such as Consensys and the Ethereum Foundation, will remain unaffected by potential regulatory actions, especially in the United States.
Given the reduced demand for leveraged long positions, declining staking yields, regulatory uncertainties, and a more general lack of interest, the likelihood of Ether dropping below $1,500 remains relatively high. Ethereum’s challenges are significant, and it is crucial for the Ethereum community to address these issues collectively to redefine the narrative surrounding the second largest cryptocurrency.