CRYPTO

Drop in network activity may cause Ether to fall below $1,000


Ethereum’s Merge dominated the crypto world in September with promises of quicker transaction times, improved security and a 99% reduction in energy consumption. During the Merge event, the Ethereum mainnet, the then-current proof-of-work (PoW) blockchain, merged with the proof-of-stake (PoS) Beacon Chain, marking the end of PoW as the consensus mechanism for the Ethereum blockchain.

On the Beacon Chain, Ethereum joined ranks of other major PoS blockchains such as BNB Chain, Cardano and Solana. Ether is the second largest cryptocurrency by market cap after Bitcoin and Ethereum is the chain that has spearheaded decentralized finance (DeFi) and nonfungible token (NFT) activity.

However, new statistics have investors worried that despite the positive development of the blockchain, its native token may fall in price, with many suggesting that the price of Ether will fall below $1,000 in the short term. This worry is because network activity has dropped significantly. Ethereum has witnessed a substantial drop in its daily active address (DAA) count over the last four months.

What You Should Know

  • The number of Ether DAA dropped to 152,000 on October 21st, its lowest level since June, according to data provided by Santiment. In other words, the plunge showed fewer unique Ethereum addresses interacting with the network.
  • Interestingly, the drop comes after Ether’s 80%-plus correction from its November 2021 high of around $4,850. This coincidence could mean two things: Ethereum users decided to leave the market and/or paused their interaction with the blockchain network after the market’s downturn.
  • Santiment analysts blamed the drop on “weak hands,” sentimental traders who drop out of the market during a bearish or stagnant phase, noting; “Disinterest [is] at a high as [the Ethereum] prices have stagnated.”
  • Notably, Ether’s price has been trading inside the $1,200-$1,400 range for over a month, accompanied by a drop in weekly trading volumes.
  • Disinterest among investors is also visible across Ethereum-based investment funds. These funds witnessed outflows worth $3.9 million in the week ending Oct. 14, according to CoinShares’ latest weekly report. Moreover, these outflows have reached $368.70 million on a year-to-date (YTD) timeframe.
  • Crypto prices have tumbled across 2022 with other riskier assets, brought down by global central banks’ tightening policies to tame rising inflation. However, they risk bearish continuation as inflation remains elevated, prompting more rate hikes in the future.
  • On the technical analysis side, Ethereum could suffer due to inflation-related macro risks. In other words, ETH could slip below its prevailing rising trendline support, thus triggering a classic continuation setup called the “ascending triangle.”
  • The profit target of an ascending triangle pattern is measured after adding the maximum distance between its horizontal trendline resistance and rising trendline support to the breakdown point. As a result, ETH’s downside target comes to be around $750, or 40% lower than the current price levels.
  • Conversely, a rebound from the lower trendline could have Ether eye a rally toward the upper trendline. In other words, a climb toward $1,800 in October, up 40% from current prices.

Expert Opinions

Nairametrics was able to speak with some experts in the field to share their opinion on what they believe will happen to the price of Ethereum in the short run, considering the reduction in network activity;

Manuel Ortiz-Olave, Co-founder at Brickken

“Past narratives claimed that an increasing number of active users in the crypto space were a catalyst for higher prices. The cause-effect direction appears to be clear. The more active users, the more buying activity. However, the reverse scenario does not appear as clear. Lower active users do not necessarily imply more selling activity. It is simply less activity. The price range in ETH actually confirms this view. Since September 19th, Ethereum prices have remained within a tight, well-defined range between $1,380 and $1,260. This is the lowest volatility seen in the crypto space in a very long time.

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“Looking ahead however price action appears to be more linked to other factors such as 1) correlation with equity indices, 2) correlation with the dollar and 3) economic cycle.

“We see that correlation between ETH and the Nasdaq100 is currently near its highs at 0.61, having remained positive for the last 17 months. This implies that if the Nasdaq keeps falling, it will likely be a drag on ETH. The correlation with the dollar is on the other side negative, implying that a higher dollar will also drag ETH down.

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“Lastly, we have the economic cycle, which tends to be a leading indicator of both equity indices and the dollar. We have seen the US dollar rising more than 20% this year as markets move to safe havens, whilst equity indices are all in crash conditions with the Nasdaq having lost over 30% of its value this year.

“As such, we believe we should be more focused on these components looking for clues of future price action, which look quite murk in any case.”

Alexander Tkachenko, Co-Founder & CEO of VNX

“From the helicopter view, on a large scale, ETH has moved in a range, which according to Wyckoff’s methodology can be assessed as a distribution with targets lying well below current levels. This is also supported by fundamentals analysis, as a recession in developed markets and a rate hike are expected. On-chain analysis shows a high hold, which is usually interpreted in favour of growth, but velocity is at low levels, which shows the real use of the chain.”

Adam Carver, Co-Founder & CEO of Bitgreen

“Ethereum is the darling of the blockchain world. Much to the chagrin of the Bitcoin maxi crowd more developers build on Eth than on any other network, and it’s a better proxy for blockchain’s future than Bitcoin. Moreover, the platform’s successful transition to POS will continue to bolster its advantages. So even with DAUs falling in the past year, I expect Eth investors to fiercely defend the psychologically monumental price of $1,000.” 



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