The price of Ethereum (ETH) saw a 7% decline between October 6 and October 12, reaching a seven-month low of $1,520. Although there was a slight rebound to $1,550 on October 13, investor confidence and interest in Ethereum appears to be waning, as evidenced by multiple metrics.
Some might argue that this movement reflects a broader disinterest in cryptocurrencies, which is evident in the fact that Google searches for “Ethereum” have reached a 3-year low. However, Ethereum has underperformed the overall altcoin market cap by 15% since July.
Interestingly, this price movement coincided with Ethereum’s 7-day average transaction fee falling to $1.80, the lowest level in the past 12 months. To put this into perspective, just two months ago, these fees amounted to more than $4.70, a cost considered high even for initiating and closing bulk Layer 2 transactions.
Regulatory uncertainty and lower mortgage yields are driving down the price of ETH
An important event that affected the price of Ether was the statements made by the founder of Cardano, Charles Hoskinson, regarding the classification of Ethereum by US SEC Director William Hinman as a non-security asset in 2018. Hoskinson, who is also one of the founders of Ethereum, claimed on October 8 that A form of “nepotism” that influenced the regulatory body’s decision.
Ethereum’s share has also received less attention from investors involved in the network’s validation process, with the return falling from 4.3% to 3.6% in just two months. This change occurred alongside an increase in the supply of Ethereum due to decreased activity in the burning mechanism, reversing the prevailing scarcity trend.
On October 12, regulatory concerns escalated after the Prudential Supervision and Resolution Authority (ACPR), a division of the French central bank, highlighted the risks of a “paradoxically high degree of concentration” in decentralized finance (DeFi). The ACPR report suggested the need for specific rules governing smart contract adoption and governance to protect users.
Derivatives data and TVL depreciation reflect bear control
A closer look at derivatives metrics provides insight into how professional ethereum traders will position after a price correction. Typically, monthly ETH futures contracts trade at a 5-10% annual premium to compensate for late trade settlement, a practice that is not unique to cryptocurrency markets.
The premium for Ethereum futures reached its lowest point in five months on October 12, indicating a lack of demand for leveraged long positions. Interestingly, even an 8.5% rise in Ethereum prices between September 27 and October 1 could not push Ethereum futures above the neutral threshold of 5%.
The total value of Ethereum locked (TVL) has decreased from 13.3 million ETH to 12.5 million ETH in the past two months, indicating a decline in demand. This trend reflects diminishing confidence in the DeFi industry and fewer benefits compared to the 5% yield offered by traditional USD financing.
To evaluate the significance of this decline in TVL, one should analyze metrics related to the use of decentralized applications (DApps). Some decentralized applications, including DEX exchanges and NFT marketplaces, are not financially intensive, making the value deposited irrelevant.
Unfortunately, for Ethereum, the decline in TVL was accompanied by a decline in activity in most of the ecosystem’s decentralized applications, including leading DEX, Uniswap, and the largest NFT marketplace, OpenSea. The decline in demand is also evident in the gaming sector, where Stargate shows only 6,180 active accounts on the network.
While regulatory concerns may not be directly related to Ethereum’s classification as a commodity, they may negatively impact the decentralized applications industry. Furthermore, there is no guarantee that key pillars of the ecosystem, such as Consensys and the Ethereum Foundation, will remain unaffected by potential regulatory actions, especially in the United States.
Given the lower demand for leveraged long positions, lower betting returns, regulatory uncertainties, and lack of interest more broadly, as indicated by Google Trends, the probability of Ethereum falling below $1,500 remains relatively high.
This article is for general information purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.