Key Takeaways:
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ETH stays capped below $3,000 as repeated breakout failures weaken trader confidence and suppress near-term momentum.
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A sustained ETH rally requires stronger network activity and DApp demand to offset weak leverage and ETF flows.
Ether (ETH) has traded inside a good 4% range over the past week, leading traders to query whether the $2,900 support level will hold. The repeated failure to interrupt above $3,000 coincided with a decline in Ethereum network fees and muted demand for Ether exchange-traded funds (ETFs).
This lack of conviction can also be evident within the ETH derivatives markets, causing traders to reassess whether a sustainable recovery continues to be possible within the near future.
ETH 2-month futures base rate. Source: Laevitas.ch
Monthly ETH futures traded at a 3% annual premium in comparison with spot markets on Tuesday, indicating extremely low demand for bullish leveraged positions.
Under neutral conditions, this premium is often above 5% to compensate for the longer billing period, nevertheless it has fallen below this threshold in recent weeks.
Ethereum fees are falling despite increasing network activity
Part of the weak investor sentiment could be explained by falling Ethereum network fees as traders anticipate lower demand for ETH.
More importantly, demand for competing blockchains focused on decentralized applications (DApps) has remained stable, leading investors to query why the Ethereum network is lagging behind.
Blockchains sorted by 7-day fees, USD. Source: Nansen
Ethereum network fees fell by 26% in comparison with the baseline, despite the variety of transactions increasing by 10% during this era. At first glance, Ethereum activity has not slowed down. However, a big a part of ETH's price outlook is determined by the actual demand for blockchain processing.
In comparison, transactions on BNB Chain and Solana remained largely unchanged through the same seven-day window. To determine whether demand for Ether stays solid, it’s mandatory to judge the effective use of DApps on the network.
7-day decentralized application fees for Ethereum, USD. Source: DefiLlama
Fees generated by Ethereum DApps have remained relatively constant over the past 4 weeks, although well below the height of $140 million recorded in October. The data shows that activity on the Ethereum network is stagnating, but removed from collapsing.
The lack of optimism about ETH's short-term momentum can also be evident within the selling pressure on Ether ETFs. This metric is usually related to institutional demand, especially since these instruments have seen nearly $17 billion in inflows.
BlackRock's iShares Ethereum Trust ETF (ETHA US) leads the group with $10.2 billion in assets under management.
Daily net inflows of Ether ETFs, USD. Source: Farside Investors
Daily net outflows from Ether ETFs of $307 million since Dec. 17 will not be significant, accounting for lower than 3% of total assets, but the dearth of demand continues to be weighing on investor sentiment. Even skilled traders may grow to be skeptical after ETH repeatedly didn’t stay above the $3,000 mark for 2 weeks.
Additionally, it’s difficult to separate Ether's weak performance from broader risk concerns related to a worldwide economic slowdown.
As governments face tighter fiscal conditions, central banks have less room to chop rates of interest, increasing recession risks. Therefore, investors are prone to remain cautious in regards to the cryptocurrency market until there may be more clarity on the economic outlook.
While weak demand for bullish ETH leverage positions and Ether ETFs isn’t a death sentence, a sustained recovery will likely rely on stronger Ethereum network activity and increasing demand for DApps.
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