Ethereum price crumbles as dApps flee for cheaper platforms
The last few days have seen projects migrate from the Ethereum ecosystem to other blockchains, with the latest big-name player being DeFi aggregator 1inch.
- The total value locked (TVL) across the DeFi ecosystem has been dipping at a furious pace, falling by nearly 25% over the course of the last 5 days.
- Despite the recent bloodbath, ETH is still exhibiting monthly gains of over 10%.
- Experts believe a market correction similar to this one was long overdue.
The last few days have not been kind to Ethereum as well as the crypto market as a whole, with the premier digital currency dropping from its all-time high of AUD$2,495 to as low as AUD$1,872 within a span of just 72 hours. At press time, Ether is trading at AUD$1,948, thus showcasing a weekly loss ratio of around 22%.
The scene has pretty much been the same across the board for most major cryptos, with every asset in the top 10 – barring Cardano (ADA) – currently seeing red. As a result, the total market capitalisation of the market has dipped from US$1.78 trillion to US$1.46 trillion between 22 Feb and 26 Feb.
On a more technical note, it's worth pointing out that AUD$2,162 remains a key level of resistance if Ether is once again able to rise in the coming few days. However, due to the incoming wave of bearish pressure, if the currency breaks its current support levels of AUD$1,722, it could quite easily slip to as low as AUD$1,275.
Ether will rise again as per experts
To gain a better understanding of why Ether is currently struggling and losing its mainstream traction – as is best highlighted by the fact that the total volume locked (TVL) into the DeFi ecosystem has dropped sharply from US$43.15 billion to US$34.76 over the course of the last 5 days – Finder reached out to Marie Tatibouet, chief marketing officer (CMO) for cryptocurrency exchange Gate.io. She opined:
"'Struggling' may be too harsh a term here. The entire cryptocurrency market went through a temporary price correction in the beginning of this week - i.e. February 22 and 23. Like every other major crypto-asset, Ethereum was also a bit overvalued, as such, a temporary price correction was necessary. ETH is bound to bounce back up soon."
When asked about what makes her so sure about Ether making a comeback in the near term, Tatibouet pointed out that Ethereum has been attracting a lot of interest from all sides, such that in its annual review for 2020, Coinbase noted that a growing number of institutional investors have taken a position in Ether rather than other premier cryptos. "Earlier this week, digital asset manager, Grayscale purchased 52,730 Ether in 24 hours. They currently have 3.13M ETH under management," she further added.
In this vein, it also bears mentioning that the Chicago Mercantile Exchange (CME) successfully launched Ether futures contracts recently, with trade volumes soaring above the US$100 million mark over the past 24 hours, thus providing institutions with another avenue to invest in the smart contract leader.
Recent price correction was necessary
Speaking with Anna Tutova, CEO of crypto-consulting firm Coinstelegram, she told Finder that while many had thought Ether would keep rising and probably scale to around the US$2,500-US$3,000 region, the asset was severely overextended from its mean, as well as from its 20 weekly simple moving average, adding:
"A pullback was expected. This kind of pullback is expected usually during the month of February after a post-December pump against Bitcoin. Additionally, Ethereum was moving fast towards the top half of the logarithmic growth band between the tops and bottoms of price history. Nothing stays parabolic. Everything will correct."
She explained that whether people like it or not, Ethereum still largely follows Bitcoin in terms of its daily price movements, even though it does possess the potential to eventually flip this narrative. Additionally, Tutova believes such annual fluctuations can be navigated through quite easily since these seasons are relatively easy to track. "The four-year cycle is even more predictable. At this phase, we're at the crossover of both cycles," she added.
On the subject of scalability and how a number of projects are continuously migrating to other blockchains, with the recent and most notable example being DeFi aggregator 1inch, which recently expanded its operations on to the Binance Smart Chain (BSC), Tatibouet is confident that while Ethereum is facing rising scalability issues, there are two things that investors need to keep in mind:
"Firstly, the upgrade to ETH 2.0 and a proof-of-stake model is going to increase scalability by a tremendous amount. Secondly, the EIP-1559 implementation – that's going to go live in July with the London hard fork – is going to reduce the gas fees by an exponential amount."
By solving its scalability and the high gas fees rate, Ethereum will most likely put an end to two of its biggest issues that have prevented it from being the finance platform of the future. Furthermore, as Finder pointed out earlier, the proof-of-stake model, which ETH 2.0 utilises, incentivises institutional investors to accumulate as much ETH as possible so that they can gain annualised interest on their holdings. This decreasing token velocity combined with increasing use cases bodes very well for Ethereum.
Disclosure: The author owns a range of cryptocurrencies including at the time of writing