Since May 12, Ether (ETH) price has been struggling to sustain its $1,800 support level, due to a worsening crypto regulatory environment and high gas fees on the Ethereum network. Additionally, three indicators may also point to reduced demand for its decentralized applications (DApps) and a lack of leverage buying demand from professional traders.
Recently, the U.S. Securities Exchange Commission (SEC) responded to Coinbase’s petition for clear crypto regulation, stating that rulemaking could take years, with enforcement actions continuing in the meantime. Furthermore, the approval of the European Union’s highly-anticipated Markets in Crypto-Assets (MiCA) regulation could impose risks for non-custodial solutions, including decentralized finance (DeFi) applications.
The soaring Ethereum gas fees have limited the demand for DApp usage, resulting in the total deposits on the Ethereum network plunging to their lowest levels since August 2020, excluding the effects of native Ethereum staking. According to DefiLlama data, Ethereum DApps recorded 14.9 million ETH in total value locked (TVL) on May 16, a 10% decline from two months prior. By comparison, TVL on BNB Smart Chain in BNB terms remained essentially flat in the same period, while Polygon network’s (MATIC) deposits increased by 29%.
Furthermore, Ethereum’s market share by volume on decentralized exchanges (DEXs) declined to its lowest level ever, at 39.6% in the week ending May 14. Chains that gained on DEX trading volumes were Arbitrum, increasing to 14% from 7%, and BNB Smart Chain, growing to 31% from 5.6% since March 5.
While some argue that the success of Ethereum network’s scaling solutions reflects bullishness for Ether’s price, that relationship might not be so direct. For instance, Ether’s three-month futures annualized premium currently stands at 1%, which is on the edge of turning negative. This phenomenon, known as backwardation, could be an alarming red flag indicating that bearish demand dominates the scene.
To sum it all up, the reduced total value locked in Ethereum applications, record-low DEX market share, and lack of leverage buying demand make it difficult for Ether to break the $1,900 resistance in the short term. Presently, Ether bears are in control, which favors the odds of a price correction. However, it is crucial to note that this analysis is not intended as legal or investment advice, and readers should always conduct their research when making decisions.
Source: Cointelegraph
