Since May 12, the price of Ether (ETH) has struggled to maintain its $1,800 support level as investors face pressures from the worsening crypto regulatory environment and high gas fees on the Ethereum network. Also negatively impacting Ether’s price are 3 indicators that signal a decrease in demand for decentralized applications (DApps) and a lack of leverage to buy from professional traders.
Regulators announced their plan to further limit crypto intermediaries
According to court documents filed on May 15, the US Securities Exchange Commission (SEC) gave a formal response to the court regarding Coinbase’s petition for clear crypto regulation. The SEC says any ruling could take years and that enforcement actions will continue in the meantime.
On May 16, the Economic and Financial Affairs Council of the European Union – composed of the finance ministers of all member states – approved the expected regulation of Markets in Crypto-Assets (MiCA), which will start in mid-2024 .
Some argue that MiCA facilitates the growth of businesses in the region, while others point to privacy risks for personal user data, and the risks imposed for non-custodial solutions, including applications. in decentralized finance (DeFi).
The decline in DApp deposits is worrying
The Ethereum network has experienced problems caused by the increase in gas fees, the cost associated with transactions, including those made by smart contracts. In the last 4 weeks, the average transaction fee has stood above $9, which severely limits the demand for using the DApp.
The total deposits of the Ethereum network in terms of Ether have dropped to their lowest level since August 2020. That analysis does not include the effects of native Ethereum staking, which has recently started to be allowed of withdrawals.
According to DefiLlama data, Ethereum DApps reached 14.9 million ETH in total value locked (TVL) on May 16. That compares to 16.5 million ETH two months before, a 10% decrease. As a comparison, BNB Smart Chain’s TVL in BNB terms was flat during the same period, while Polygon network (MATIC) deposits increased by 29%.
BNB Smart Chain tries to lead DEX volume
Ethereum may have been the absolute leader in DEX volumes since inception, but this position is being challenged. Ethereum’s market share by the number of decentralized exchanges (DEXs) increased by 75% in the week ending March 5 but continued to decline to its lowest level ever, at 39.6% in the week ending May 14.
Gainers in DEX trading volume are Arbitrum, increased to 14% from 7%, and BNB Smart Chain, increased to 31% from 5.6% since March 5. One can argue that the success of the Ethereum network in scaling solution shows bullishness for the price of Ether, but that relationship is not very direct.
Related: Updated European tax directive requires reporting of all crypto asset transfers
The data shows pro traders turning bearish
Ether quarterly futures are popular with whales and arbitrage desks. However, these fixed-month contracts usually sell at a small premium to see markets, indicating that sellers are asking for more money to delay settlement.
As a result, ETH futures contracts in healthy markets must trade at a 5 to 10% annual premium – a situation known as contango, which is not unusual in crypto markets.
Professional ether traders have been avoiding leveraged longs (bullish bets) since early April. In addition, the current 1% ETH futures premium is on the verge of becoming negative, known as backwardation – if confirmed, this is an alarming red flag as bearish demand dominates the landscape.
In short, those 3 indicators signal $1,900 resistance that will be difficult to break in the short term, namely the decline in TVL, record-low DEX market share, and lack of leverage buying demand. For now, Ether bears are in control, favoring the possibilities of a price correction.
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This article does not constitute investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.