Ethereum’s Struggles
It’s been a tough month for Ether (ETH), the cryptocurrency that powers the Ethereum network and plays a significant role in various sectors of web3 like DeFi, NFTs, GameFi, GambleFi, and SocialFi. The ETH price has taken a hit, currently trading just below $1,550 after reaching a seven-month low at $1,520. This represents a decrease of over 7.5% for the month. Bitcoin (BTC), on the other hand, the world’s largest cryptocurrency, has only experienced losses of around 0.5% for the same period.
Ethereum is on track to post its third negative month in four, with a total pullback of approximately 28% from the yearly highs observed in April, close to $2,150. In contrast, Bitcoin’s pullback from its earlier yearly highs in June is more conservative at 16%, currently trading around the $26,800 mark. This dynamic has led some investors to question whether it might be time to move away from Ethereum and invest in Bitcoin.
“ETH/BTC has been stuck within a bearish falling wedge pattern for the best part of a year.”
One reason to consider shifting from Ethereum to Bitcoin is the bearish falling wedge pattern that the ETH/BTC pair has been trapped in for the past year. However, about a week ago, the cross broke bearishly to the downside of this pattern and has since faced strong resistance at the former support level. Additionally, the cross has encountered substantial resistance at its major moving averages in recent months, indicating that momentum remains with the bears. Technical developments further suggest a continuation of the bearish market bias, with a potential test of the mid-2022 lows around 0.049 on the horizon.
Decreased Demand for Ether
While overall demand for cryptocurrencies appears subdued, Ether seems to be experiencing particularly poor demand. Spot trading volumes across major cryptocurrency exchanges have been falling, indicating a lack of interest in cryptocurrencies. The launch of a batch of Ether futures Exchange Traded Funds (ETFs) in the US last week generated minimal trading volumes despite significant hype, suggesting that institutions are currently staying on the sidelines.
Data shows that Ether future trading volumes have been steadily shrinking since March, with figures dropping from around $770 billion to approximately $250 billion in September. On-chain metrics such as active users, number of transfers, total transfer volume, and new addresses have also stagnated. This lackluster demand has resulted in low gas fees and an increase in the Ether supply, turning it inflationary. As a result, demand for Ether staking, a previously positive aspect for the token, has declined. ETH staking yields are now consistently below 4%, while long-term US government bonds offer yields closer to 5% and are considered risk-free investments.
Regulatory Risks for Ether
In addition to technical and demand-related challenges, Ether faces greater regulatory risks in the US compared to Bitcoin. The current leadership of the US Securities and Exchange Commission (SEC) has explicitly stated that Bitcoin is not considered a security. However, while the SEC hasn’t explicitly labeled Ether as a security, Chairman Gary Gensler has expressed his belief that ETH falls under this category. This regulatory uncertainty surrounding Ether has left investors concerned about its outlook.
Regulatory clarity for ETH in the US is likely to come either from Congress passing comprehensive crypto legislation or from decisive defeats for the SEC in its ongoing lawsuits against US crypto firms. Unfortunately, neither outcome is expected to occur in the near future. On the other hand, Bitcoin remains a safe haven within the crypto space. With bullish narratives surrounding Bitcoin expected to grow in the coming years, including the anticipated approval of various spot Bitcoin ETFs by the SEC and the upcoming halving event in April, now might be the ideal time to shift focus towards the world’s foremost cryptocurrency.
