Ethereum (ETH) has encountered resistance in breaking past the $2,200 mark, attributed to dwindling network activity, a downward trend in total value locked (TVL), and investors’ anxiety over the rate of ETH supply emissions. Despite a 14.2% surge from the $2,000 support level on March 4, ETH is lagging behind the broader cryptocurrency market by 11% in the last two weeks.
The exact reasons behind traders shedding their ETH exposure are multifaceted. Contributing factors include declining onchain activity, a reduced TVL, a net positive ETH issuance rate, and speculation regarding the potential establishment of a US digital asset reserve. This situation is compounded by the growing possibility of Solana obtaining approval for spot exchange-traded funds (ETFs) in the US, potentially attracting institutional capital away from Ethereum.
Between February 19 and March 4, Ethereum ETFs experienced $336 million in net outflows, underscoring ETH’s underperformance. Ethereum remains a leader in decentralized exchange (DEX) volume, registering $22.45 billion over seven days. Yet the competition is intensifying, with Solana capturing a 4% gain during the same timeframe. According to DefiLlama, Ethereum witnessed a 49% decline in Curve Finance activity and a 16% decrease in Pendle volumes.
The overall TVL for Ethereum shrank by 13% to $50.8 billion in the past two weeks, casting doubt on ETH’s capacity to outstrip the broader crypto market in the near future. Uniswap, Ether.fi, Lido, and Morpho are among those seeing severe drops in TVL, ranging from 18.8% to 22.5%.
Interestingly, Ethereum’s onchain activity slowdown has resulted in average transaction fees dipping below $1, a first since July 2020. However, weaker blockchain demand alongside an increase in ETH supply is concerning. The burn mechanism from EIP-1559 has largely been offset by expanding blob space for layer-2 scalability.
The ‘Pectra’ network upgrade is anticipated to potentially balance fee distribution within the Ethereum ecosystem, but further adjustments may be necessary. Meanwhile, impending regulatory discussions, including a White House crypto summit on March 7, aimed at evaluating crypto strategic reserves, leave traders wary about ETH’s potential for being included as a key asset.
Overall, the Ethereum market faces complex challenges and uncertainties, necessitating keen observation as the crypto landscape continues to evolve.
