Since May 12, the price of Ether (ETH) has been struggling to hold its support level of $1,800 as investors face pressure from a worsening cryptocurrency regulatory environment and high gas fees from the Ethereum network. . Also negatively impacting the price of Ether are 3 indicators that indicate a lower demand for its decentralized applications (DApps) and a lack of interest in leveraged buying on the part of professional traders.
Regulators flag their plan to further limit cryptocurrency brokers
According to court documents filed on May 15, the US Securities and Exchange Commission (SEC) has given a formal response in court regarding Coinbase’s request for clear regulation of cryptocurrencies. The SEC stated that any rulemaking can take years and that enforcement actions will continue in the meantime.
On May 16, the Council for Economic and Financial Affairs of the European Union – made up of the finance ministers of all member states – approved the long-awaited Markets in Crypto-Assets (MiCA) regulation, which will come into force in mid-2024. .
Some argue that the MiCA framework facilitates the growth of companies in the region, while others focus on the risks to the privacy of users’ personal data, and the risks imposed for non-custodial solutions, including decentralized finance applications. (DeFi).
The drop in deposits in DApps is worrying
The Ethereum network is experiencing problems caused by the increase in gas rates, the cost associated with transactions, including those made by smart contracts. Over the past 4 weeks, the average transaction fee has been above $9, severely limiting the demand for DApps.
Total deposits on the Ethereum network in Ether terms plummeted to their lowest levels since August 2020. Such an analysis excludes the effects of native Ethereum staking, which have recently started allowing withdrawals.
According to data from DefiLlama, Ethereum DApps reached $14.9 million ETH in total value locked (TVL) on May 16. This figure contrasts with the 16.5 million ETH of two months earlier, which represents a decrease of 10%. For comparison, TVL on BNB Smart Chain in BNB terms was essentially flat over the same period, while Polygon (MATIC) network deposits rose 29%.
BNB Smart Chain tries to take the lead in DEX volume
Ethereum may have been the absolute leader in DEX volumes since its 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 of 39.6% in the week ending March. may 14.
The biggest gainers in DEX trading volume were Arbitrum, which rose from 7% to 14%, and BNB Smart Chain, which grew from 5.6% to 31% since March 5. It could be argued that the success of Ethereum network scaling solutions reflects an upward trend in the Ether price, but that relationship is not that direct.
Data Shows Some Professional Traders Turning Bearish
Quarterly Ether futures are popular with sellers and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to the 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 5-10% annualized premium, a situation known as contango, which is not unique to cryptocurrency markets.
Professional Ether traders have avoided leveraged longs (bullish bets) since early April. Also, the current 1% premium for ETH futures is about to turn negative, known as backwardation.
In summary, those 3 indicators signal that the resistance at the $1,900 level will be difficult to break in the short term, namely the reduced TVL, the DEX market share at record lows, and the lack of leveraged buying demand. For now, Ether bears are in control, favoring the odds of a price correction.
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