Analysis of the current price chart of Ether (ETH) paints a bearish picture that is largely justified by the 11% drop in the last month, but other traditional financial assets faced more extreme price corrections in the same period . The Invesco China Technology ETF ($CQQ) is down 31% and the Russell 2000 is down 8%.
Traders are currently fearful that the loss of the descending channel support at $2,850 could lead to a stronger drop in price, but this largely depends on how derivatives traders position themselves along with Ethereum network metrics on -chain.
According to Defi Llama, the total value locked (TVL) of the Ethereum network has flattened in the last 30 days by 27 million Ether. The TVL measures the number of coins deposited in smart contracts, including decentralized finance (DeFi), NFT markets, games, and high-risk applications.
The average transaction rate of the Ethereum network increased to USD13 after bottoming out at USD11.50 on April 20, but it would be necessary to analyze if this reflects a lower use of decentralized applications (DApps) or simply if it is about users who benefit of layer 2 scaling solutions.
Traders use data from the Ether futures market to understand how professional traders position themselves, but unlike standard perpetual futures, quarterly contracts are the instruments of choice for whales and market makers because they can avoid the fluctuating funding.
The basis indicator measures the difference between long-term futures contracts and current cash market levels. In neutral markets, the annualized premium for ether futures should range from 5% to 12% to compensate traders for “locking up” money until contract expiration.
The current 2% basis for Ether futures clearly shows the lack of demand from buyers for leverage. Although not exactly a backwardation (negative premium), an annualized futures premium below 5% is generally considered bearish.
This data tells us that professional traders have been neutral to bearish over the past two months, but to exclude externalities that could have influenced the derivatives data, look at the Ethereum network chain data. For example, tracking network usage tells us whether actual use cases support the demand for Ether.
On-chain metrics are slow
Measuring the number of active addresses on the network provides a quick and reliable indicator of effective usage. Of course, this metric could be wrong due to the increasing adoption of Layer 2 solutions, but it works as a starting point.
The current average of 584,477 daily active addresses is down 4% from 30 days ago and nowhere near the 675,117 views in November 2021. Thus, the data shows that Ether token transactions are not showing any signs. of growth, at least in the primary layer.
Traders should rely on DApp usage metrics, but avoid focusing exclusively on TVL because that metric is heavily focused on DeFi applications. Measuring the number of active addresses provides a broader view.
Active Ethereum DApp addresses have been stagnant for the past 30 days. Overall, the data is slightly disappointing, considering that competing chains, such as Solana, experienced a 34% increase in active addresses.
Unless there is decent growth in Ether transactions and DApp usage, the descending support channel resistance of $2,850 might not hold, triggering a deeper short-term price correction.
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