Ether (ETH) price plummeted below $1,100 in the early hours of June 14 at prices not seen since January 2021. The move lower marks a 78% correction from the all-time high of USD 4,870 on November 10, 2021.
More importantly, Ether has outperformed Bitcoin (BTC) by 33% between May 10 and June 14, 2022, with the last time a similar event occurred in mid-2021.
Although Bitcoin oscillated in a tight range two weeks before the 0.082 ETH/BTC peak, this period marked the peak of “DeFi summer” when Ethereum’s Total Value Locked (TVL) catapulted to $93B from $42B. Two months before.
What is behind the poor performance of Ether in 2021?
Before jumping to conclusions, a larger data set is needed to understand what led to the 31% correction in the ETH/BTC price in 2021. Looking at the number of active addresses is a good place to start.
The data shows steady growth in active addresses, rising from 595,620 in mid-March to 857,520 in mid-May. So not only did the growth of TVL take investors by surprise, but also the number of users.
Ether’s 31% underperformance against Bitcoin in June 2021 reflected a cooling off period after unprecedented growth in the Ethereum ecosystem. The consequence for the price of Ether was devastating and a 56% correction followed that “DeFi summer”.
One must compare recent data to understand if Ether is headed for a similar outcome. In that sense, those who expected the 31% failure against the price of Bitcoin bought the altcoin at a low of the cycle near USD 1,800 on June 27, 2021 and the price increased by 83% in 50 days.
Is Ether showing a buy signal right now?
This time, there is no DeFi Summer and before this year’s 33% negative return against Bitcoin, the active direction indicator was already slightly bearish.
As of May 10, 2022, Ethereum had 563,160 active addresses, in the lowest range in recent months. This is the exact opposite of the mid-2021 move that occurred when Ether price accelerated its losses in BTC terms.
One would still think that despite a relatively flat number of users, the Ethereum network has been growing by featuring a higher TVL.
The data shows that on May 10, 2022, the Ethereum TVL network had $87 billion in deposits, up from $102 billion the previous month. Thus, there is no correlation between the mid-2021 cooldown after “DeFi summer” and the current 33% Ether price drop against BTC.
These metrics show no evidence of similarity between the two periods, but $1,200 could also be a cycle low, and this will depend on factors other than network usage.
Considering how weak active addresses and TVL data were before the recent price correction, investors should be very careful when trying to predict a market bottom.
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