ethereum has performed disappointingly for its investors in recent weeks, raising concerns that the second-largest cryptocurrency by market capitalization has lost its shine. The cryptocurrency continues to hover around the $3,100 level, without making any significant breakout to the upside. This points to weak fundamentals that could trigger a price decline.
ethereum fails to make significant moves
Markus Thielen, head of research at 10x Research, has pointed out some worrying developments in the price of ethereum. In a new report shared with NewsBTC, he explains that even though ethereum remains highly correlated with bitcoin with an R-Square of 95%, it continues to underperform while the latter has reached new all-time highs.
Thielen again points to eth's performance in the last bull market, which was closely linked to new sectors emerging from the network, such as decentralized finance (DeFi) and non-fungible tokens (nft). This caused demand to skyrocket and in turn the price followed as users gobbled up eth for the high gas fee required to transact on the blockchain.
However, ethereum has failed to maintain this momentum, which can be attributed to its inability to deliver the updates users needed in time. Thielen explains that the Dencun upgrade that helped solve the problems of high gas rates came three years late because by 2024, when the upgrade arrived, users had moved to Layer 2 networks. Additionally, during this time, other networks of Layer 1 have experienced an increase in users and Solana is an example of this.
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Source: 10x Research
The researcher further explained that eth's weak fundamentals are now not only affecting its price but have had an indirect effect on bitcoin. “ethereum's weak fundamentals are becoming an obstacle for bitcoin, preventing a broad influx of fiat money into the crypto ecosystem,” Thielen said.
It is better to short eth
Thielen's analysis of ethereum also extends to the decline in the use of stablecoins on the network. In 2021, ethereum had dominated the transactions of stablecoins like USDT and USDC. However, it seems that, among other things, high fees have driven users towards other networks. Blockchains like Tron (TRX) now dominate stablecoin transactions, leaving eth in the dust.
Furthermore, there is also the fact that eth issuance is becoming inflationary once again. After the London Hard Fork, also known as EIP-1559, was completed in 2021, the network saw its issuance turn deflationary for the first time, as eth burning quickly outpaced eth putting into circulation.
However, this has changed in recent months, as more eth has been issued than burned, Thielen notes. To put this into perspective, a total of 74,000 eth were issued compared to only 43,000 eth burned. This inflation, coupled with the fact that staking rewards have now fallen to 3%, below the 5.1% offered by Treasury yields, ethereum has found it difficult to maintain bullish sentiment.
Considering these developments, the researcher believes it is best to be bearish on ethereum at this time. “Right now, we would be more comfortable holding a short position in eth than a long one in btc, as ethereum fundamentals are fragile, which is not yet reflected in eth prices,” Thielen concludes.
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eth price fails to hold $3,100 | Source: ETHUSD on Tradingview.com
Featured image by Watcher Guru, chart from Tradingview.com
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