Ether (eth) is struggling to hold the $2,000 support as of November 27, following its third failed attempt in 15 days to break the $2,100 mark. This drop in Ether’s performance comes as broader cryptocurrency market sentiment deteriorates, making it necessary to analyze whether
Recent developments, such as the US Department of Justice (DOJ) flagging potential serious repercussions for Binance founder Changpeng “CZ” Zhao, may have contributed to the negative outlook.
In a filing on Nov. 22 in federal court in Seattle, U.S. prosecutors requested a review and reversal of a judge’s decision allowing CZ to return to the United Arab Emirates on $175 million bail. The Justice Department maintains that Zhao poses an “unacceptable risk of flight and failure to appear” if he is allowed to leave the United States pending sentencing.
ethereum and DeFi DApps Face New Challenges
The recent $46 million KyberSwap exploit on November 23 has further dampened demand for decentralized finance (DeFi) applications on ethereum. Despite being previously audited by security experts, including a couple in 2023, the incident has raised concerns about the security of the DeFi industry as a whole. Fortunately for investors, the attacker expressed a willingness to return some of the funds, but the event highlighted the sector’s vulnerabilities.
Additionally, investor confidence was shaken by a Nov. 21 blog. mail from Tether, the company behind the $88.7 billion USD Tether (USDT) stablecoin. The publication announced the recent integration of the US Secret Service into its platform and hinted at upcoming involvement from the Federal Bureau of Investigation.
The lack of details in the announcement has led to speculation about an increasingly strict regulatory landscape for cryptocurrencies, especially as Binance faces increased scrutiny and Tether’s closer collaboration with authorities. These factors are likely contributing to Ether’s underperformance, with several market and on-chain indicators suggesting a decline in demand for eth.
Investors turn cautious as eth on-chain data reflects weakness
Ether exchange-traded products (ETPs) saw just an inflow of $34 million in the last week, according to CoinShares. This figure is a modest 10% of the inflow seen by equivalent bitcoin (btc) crypto funds over the same period. Competition between the two assets for approval of spot exchange-traded funds (ETFs) in the United States makes this disparity particularly notable.
Furthermore, the current 7-day average annualized return of 4.2% on ethereum staking is less attractive compared to the 5.25% return offered by traditional fixed income assets. This disparity caused a significant outflow of $349 million from ethereum stakes the previous week, as reported by SmakingRewards.
High transaction costs remain a challenge, with a seven-day average transaction fee of $7.40. This spending has negatively affected demand for decentralized applications (DApps), leading to a 21.8% decrease in DApp volume on the network in the last week, according to DappRadar.
Notably, while most ethereum DeFi applications saw a significant drop in activity, competing chains like BNB Chain and Solana saw an 11% increase and stable activity, respectively.
Related: Changpeng Zhao can’t leave US pending judicial review, judge says
Consequently, ethereum network protocol fees have declined for four consecutive days, rising to $5.4 million on Nov. 26, compared to a daily average of $10 million between Nov. 20 and Nov. 23. , as reported by DefiLlama. This trend could create a negative spiral, driving users towards competing chains in search of better returns.
The current Ether price pullback on November 27 reflects growing concerns over regulatory challenges and the potential impact of exploits and sanctions on stablecoins used in DeFi applications.
The increasing involvement of the DOJ and FBI with Tether raises the systemic risk for liquidity pools and the entire oracle-based pricing mechanism. While there is no immediate cause for panic selling or fears of a drop to $1,800, lackluster demand from institutional investors, as indicated by ETP flows, is certainly not a positive sign for the market.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
