Ethereum Down As ETF Approval Chances Weaken
09 May, 2024 ● Vijesti o kovanicama
Ether is struggling to maintain the $3,000 support level, experiencing a 4.1% decline over two days.
This bearish momentum appears to be driven by several factors, including the delay in launching an Ethereum spot exchange-traded fund (ETF) in the United States, decreased network usage, and a significant drop in the ETH burn rate.
Consequently, Ether's price has dropped by 15% since April.
Investor sentiment has been further dampened by comments from Susan Collins, the Boston Federal Reserve Chair, who suggested that persistent inflation might compel the central bank to maintain higher interest rates for an extended period.
According to Yahoo Finance, Collins' May 8 speech emphasized the need for slower economic growth to reduce demand.
With interest rates remaining above inflation, there is less incentive for individuals and companies to take out loans for consumption or production.
On one hand, potential negative impacts on corporate earnings could benefit alternative assets such as cryptocurrencies.
However, if investors fear a significant recession, many are likely to seek refuge in fixed-income and cash positions.
Increased stock buybacks in the U.S. market, driven by well-capitalized companies, further complicate Ether's recovery path.
Despite potential earnings growth, buybacks reduce sell pressure and compensate for a stagnant economy.
While Ether's performance might be influenced by the 3% correction in the total cryptocurrency market capitalization since May 6, other altcoins like BNB, Tron (TRX), Cardano, and Litecoin have outperformed Ether by 3% or more during the same period.
Even compared to Bitcoin, Ether's price has lagged by 1.5%, suggesting specific factors negatively impacting its price.
The potential for an Ethereum U.S. ETF approval was dampened after the SEC postponed its decision on the Invesco and Galaxy Digital proposal on May 6, extending the deadline until July 2024.
Additionally, U.S. SEC Chair Gary Gensler's refusal to clarify whether Ethereum could be considered a security during his May 7 appearance on CNBC's Squawk Box further eroded investor confidence in the ETF's prospects.
Gensler's appearance followed six crypto-related lawsuits in 2024.
On-chain analysis for Ethereum has been unfavorable in recent weeks.
According to ultrasound.money, the burn mechanism for Ether has hit its lowest levels in 2024.
The EIP-1559 protocol burns a fraction of the gas fees per transaction, so lower network demand leads to higher ETH supply growth.
Recent data shows an ETH 4,853 burn over seven days, significantly lower than the ETH 17,628 issued in the same period.
Although the 12,774 ETH supply increase over the past seven days represents only 0.57% annualized inflation, the issue with Ethereum network's lower usage becomes more concerning when considering its second-layer scaling solutions.
The decline in Ethereum's demand has impacted its ecosystem, including projects like Arbitrum, Base, Polygon, and ZkSync Era.
In contrast, Solana and Thorchain have shown increased activity. Similarly, Sui and Avalanche experienced a comparatively smaller decline in decentralized exchange (DEX) volumes compared to other platforms.
The exact reasons behind investors' decision to sell Ether are unclear. However, there seems to be reduced confidence in the U.S. approving an Ethereum spot instrument.
Additionally, recent network health metrics for Ethereum have deteriorated.
The uncertainty surrounding recent regulatory actions against the crypto industry, including Consensys, may also help explain the weakness in Ethereum's price.
Sources:
https://cointelegraph.com/news/why-is-ethereum-eth-price-down-today
