Can Ethereum Reclaim $4,000? Fragile Fundamentals Threaten To Send ETH Crashing
May 07 2024 - 5:00PM
NEWSBTC
Ethereum has put on a disappointing performance for its investors
over the last few weeks, leading to concerns on whether the
second-largest cryptocurrency by market cap has lost its shine. The
cryptocurrency continues to skirt around the $3,100 level, not
making any significant breaks upward. This points to weak
fundamentals that could trigger a price decline. Ethereum Fails To
Make Meaningful Moves Markus Thielen, Head of Research at 10x
Research, has pointed out some worrying developments with the
Ethereum price. In a new report shared with NewsBTC, he explains
that despite Ethereum remaining highly correlated to Bitcoin with
an R-Square of 95%, it continues to perform poorly while the latter
has made new all-time highs. Related Reading: Here’s Why This
Crypto Analyst Believes Bitcoin Is At A ‘Prime Buy Zone’ Thielen
points back to ETH’s performance in the last bull market, which was
closely tied to new sectors popping out of the network, such as
decentralized finance (DeFi) and non-fungible tokens (NFTs). 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 bring the
upgrades that users needed in time. Thielen explains that the
Dencun upgrade which helped solved the high gas fee issues had come
three years too late because by 2024 when the upgrade arrived,
users had moved on to Layer 2 networks. Also, during this time,
other Layer 1 networks have seen a rise in users and Solana is one
example of this. Source: 10x Research The researcher further
explained that the weak fundamentals of ETH are now not only
affecting its price but has had a spillover effect to Bitcoin.
“Ethereum’s weak fundamentals are becoming a roadblock for Bitcoin
as they prevent broad fiat inflow into the crypto ecosystem,”
Thielen stated. Better To Short ETH Thielen’s analysis of Ethereum
also spreads to the drop in stablecoin usage on the network. Back
in 2021, Ethereum had dominated stablecoin transactions such as
USDT and USDC. However, it seems like, with other things, the high
fees have driven users towards other networks. Blockchains such as
Tron (TRX) are now dominating stablecoin transactions, leaving ETH
in the dust. Additionally, there is also the fact that ETH’s
issuance is turning 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 burned
quickly surpassed ETH being brought into circulation. Related
Reading: Crypto Whale Spends $10.4 Million On PEPE, Do They Know
Something You Don’t? However, this has now changed in the past
months as there have been more ETH issued than those burned,
Thielen notes. To put this in 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 dropped to 3%,
below the 5.1% offered by Treasury Yields, Ethereum has had a hard
time maintaining bullish sentiment. Given these developments, the
researcher believes it is better to be bearish on Ethereum right
now. “Right now, we would be more comfortable holding a short
position in ETH than a long one in BTC as Ethereum’s fundamentals
are fragile, which is not yet reflected in ETH prices,” Thielen
concludes. ETH price fails to hold $3,100 | Source: ETHUSD on
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