Ethereum (ETH) price fails to rally in the face of good news – here’s why.
Ether (ETH) has been under pressure since June 7 when it broke the $3,800 support level. Despite a series of positive developments, the price remained below $3,600 on June 19, showing no weekly change.
Some analysts believe that the main reason for the bearish impulse is the lack of institutional interest in cryptocurrencies. Others associate it with regulatory instability in the Ethereum ecosystem.
Despite the regulatory approval for ETH, the risk of the Ethereum ecosystem continues
Noelle Acheson, author of the ‘Crypto is Macro Now' newsletter, expressed surprise at the lack of positive activity on Ether after Consensus' victory over the regulator. She questions whether other regulatory issues related to the stock could be deterring investor interest.
On June 18, Ethereum ecosystem developer Consensys announced that the US Securities and Exchange Commission (SEC) has concluded an investigation into whether Ethereum could be considered a security and the company's role in the sale of ETH. Accord began legal action against the SEC in April after receiving a notice from Wells, which warned that the MetaMask wallet could violate securities laws.
Ether's decline was linked to Bitcoin (BTC), the main cryptocurrency, which declined to around $72,000 on June 7. This happened as investors grew concerned about the fiscal health of the United States due to high interest rates and declining economic indicators such as wage growth. Increase in unemployment rate. US average hourly earnings rose 0.4 percent in May from the previous month, while the unemployment rate rose to 4.0 percent from 3.9 percent in April.
Despite the potential benefits of deteriorating macroeconomic conditions for cryptocurrencies in the medium to long term, history shows that investors tend to move away from risk assets when the threat of a recession looms. The U.S. 2-year Treasury yield fell to 4.71% from 4.94% on May 30, indicating that investors are buying these fixed-income instruments heavily.
Dan McArdle, co-founder of Case4Bitcoin, said that as long as the macroeconomic environment remains stable, the cryptocurrency will remain relatively stable and its long-term bullish trend should continue. However, McArdle warns that a “macro shock” or sharp correction in the S&P 500 could have a negative impact on cryptocurrencies in the short to medium term. Therefore, the current lack of interest in Ether may reflect investors' heightened concerns about an economic downturn.
In addition to recent consensus growth, regulatory news for Ether is overwhelmingly positive. SEC Chairman Gary Gensler has confirmed that the launch of US spot Ethereum exchange-traded funds (ETFs) will happen within three months. However, Ethereum faces its own problems, including high network processing fees, which last week topped $4.
Downside risks and potential spot demand for the Ether ETF
Despite the growth of layer-2 scale solutions such as Optimism, Base, Arbitrum, and ZKSync, some decentralized application scale has shifted to competitors such as Solana, BNB Chain, and THORChain.
Related: Bitwise updated Ethereum ETF filing says Panther is interested in buying $100M
According to Dapradar, Ethereum remains the leader in DApp volumes over the past 30 days, but faces stiff competition. Competitors such as Solana, Aptos, Cello, and Phantom have significantly outpaced growth. Additionally, active addresses connecting to DApps on the Ethereum network decreased by 40% in 30 days, while Solana and Aptos increased by 58% and 115%, respectively.
Ether's failure to break above $3,600, despite the recent launch of spot ETFs and the SEC's regulatory declaration that ETH is not a security, includes worsening macroeconomic conditions and uncertainties about additional regulatory fees on token issuers, wallet providers and exchanges – the risk is highlighted by Noel Acheson.
Finally, the four-day streak of net outflows from the Bitcoin ETF raises concerns about whether Ethereum instruments will attract higher returns as their launch approaches. Investors are concerned that Greyscale's Ethereum Trust Fund ETHE may exit when it converts to an ETF, similar to the issues that have affected GBTC due to high fees.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
