Ethereum Price Update: Factors Behind ETH’s Lackluster Performance in 2021
Ethereum, the second-largest cryptocurrency by market capitalization, has been facing challenges in its price performance compared to the broader crypto market recently. This analysis delves into the reasons behind ETH’s struggles and its efforts to bounce back.
Between September 3 and 4, the price of Ethereum experienced a 5.2% decline, encountering strong resistance at the $2,550 level. ETH has been unable to surpass this price point for eight consecutive days, causing concerns among traders about its ability to keep up with a potential resurgence in the crypto market.
Currently, ETH is trading below $2,440 and the 100-hourly Simple Moving Average. The cryptocurrency is now in a phase of attempting a recovery, having surpassed the resistance levels of $2,365 and $2,380. However, it is facing significant obstacles around the $2,400 mark, with a bearish trend line posing resistance at this level.
Several factors contribute to Ethereum’s underperformance:
1. Decreasing Network Fees: Ethereum’s network fees have plummeted to their lowest level in over four years, dropping to $3.1 million in the week ending August 31. This 88% decline over four weeks has led to criticisms of Ethereum’s compensation model and raised concerns about the network’s long-term security.
2. Weak Demand for Spot ETFs: Ethereum’s spot ETF products have experienced notable outflows, with $47 million exiting on September 3 alone. Since their introduction to the U.S. market on July 23, these instruments have recorded outflows of $475 million, indicating a lack of institutional interest.
3. Limited Staking Rewards: Ethereum’s relatively low 3.2% staking reward, considering the current 0.7% annualized inflation rate, is less appealing compared to most U.S. government bonds. This has left investors disappointed who were anticipating higher yields.
Macro factors and concerns within the tech sector are also influencing Ethereum’s performance:
1. Federal Reserve Policy: Uncertainty surrounds the U.S. Federal Reserve’s potential interest rate cuts, expected to commence in September. While a more expansionary monetary policy typically benefits risk-on markets, fears of an impending recession could drive investors towards safer assets.
2. Tech Stock Volatility: Worries about a potential tech stock bubble, exemplified by Nvidia’s recent $279 billion market cap loss, are causing uneasiness in the crypto market. As Ethereum often correlates with tech stocks, this volatility could impact its price.
Despite these challenges, Ethereum is striving for a recovery. The price has exceeded the 23.6% Fibonacci retracement level of the recent downward movement. However, to gain significant upward momentum, ETH must surpass the $2,440 resistance level.
Failure to break through this resistance could lead to further declines, with support levels at $2,365 and $2,350. A drop below these levels could push the price towards $2,310 or even $2,250 in the near term.
