Ethereum’s short-term price action can surprise traders – here’s why.
The price of Ether (ETH) has not been able to close above $2,350 for the past 15 days, but some traders still hope that the February 6 rally can bring about a more dramatic change in the trend.
Traders are watching to see if Solana's network outage and last week's massive Ether outflow have affected prices. Traders are asking if Ether can rally another 10% to reclaim the $2,650 level last seen on January 12.
Ethereum remains the leader in DApp deposits
On February 6, Solana's network experienced a 5-hour outage, disrupting block production and causing several exchanges to suspend user deposits and withdrawals of SOL and Solana-based tokens. Analysts have highlighted the consistent challenges faced by Ethereum's competitors in maintaining uptime during periods of high demand, reinforcing Ethereum's dominance in decentralized applications (DApps).
This is the reason whales prefer Ethereum over any other network.
Irrespective of congestion, downtime is critical for applications building on the network.
Love Solana, but there's a reason why ETH will remain top dog for a while or forever. https://t.co/n8ZTeNy8FX
— Tytan.eth (@Tytaninc) February 6, 2024
User @tytaninc shared his theory on the X social network, addressing criticism of Ethereum's congestion and high fees. In terms of DApp deposits or total value locked (TVL), Ethereum holds a whopping 57.8% market share with $34.8 billion. If layer-2 solutions such as Polygon, Optimum and Arbitrum are included, Ethereum's dominance reaches 67.4%, according to Defillama data.
One could argue that the average DApp user on Ethereum might not be willing to bear the network's high $5.85 average transaction fee. However, the data indicates that Ethereum leads Uniswap, 0x Protocol, Metamask Swap, OpenSea and 1inch Network with 382,490 active addresses participating with DApps in the last week alone. Specifically, active addresses exceed 2 million when you combine the ecosystem's Layer-2 scalability options, according to Dapradar data.
Ether exchange and stacking flows are used for energy speed
Regardless of what the DApp metrics indicate, the flow of assets remains the ultimate price determinant. For example, the recent Solana outage did not have a measurable impact on the network's deposits or SOL token value. This highlights the importance of controlling exchange deposits and staking parameters. The fewer coins available immediately, the higher the price impact as demand increases.
The #Ethereum currency balance has dropped to a new low, with over 7 million #ETH in circulation since April 23rd.
This trend highlights the increasing scarcity of Ethereum and indicates a bullish trend.
The trigger?
More and more investors are raising their ETH with @eigenlayer again! pic.twitter.com/XCjyFb89YZ
– Leon Weidman | Insights on the Chain (@LeonWaidman) February 5, 2024
Recent Ether exchange net flows show stocks falling to their lowest levels in more than 1 year. Since April, net withdrawals have been 7 million ETH, indicating a low interest among holders to part with their coins. One should analyze Ethereum staking flows to get more insights on how ETH holders feel about selling.
Staking is a fundamental process in the Ethereum network, where participants lock coins to ensure transactions using a proof-of-stake agreement. In short, increasing total deposits are considered money for the value of ETH. Data from StakingRewards shows a record high of 29.6 million ETH locked up per stake, up from 28.9 million a month ago.
ETH derivatives show a balanced demand between bulls and bears
To understand whether Ether investors have reversed their momentum, one needs to analyze the BTC futures premium, also known as the base rate. Fixed-month contracts in independent markets trade at 5% to 10%, taking into account the extended settlement period.
The data showed that the ETH futures premium was stable at 7% on February 6, remaining below the neutral threshold but a slight improvement from two days earlier. Basically, there was balanced demand for utility longs (buys) and shorts (sells) over the past week.
Related: Vitalik Buterin floats 5 designs to reduce Ethereum's high block rate
One should analyze the ETH options markets to avoid external factors that can only affect the future of Ether. The 25% delta skew indicator is positive when the same call (buy) and put options and fear is high.
As shown above, the delta skew has been neutral since February 2nd, falling within a neutral -7% to +7% range. On the one hand, bulls will celebrate a 3.9% gain above $2,350 on Feb. 6, which is not accompanied by high demand for defensive options. However, there is no optimism based on Ether's futures and options metrics, which indicates a slight lack of confidence in the current price level. Ultimately, if Ether's bullish activity continues, traders will be taken by surprise.
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.
