The Paradox of Ethereum Adoption: More Users, Lower Prices
Ethereum is seeing a growing disparity between the level of activity on the network and spot prices, suggesting that transaction activity alone does not create demand for Ether.
According to CryptoQuant, Ethereum network activity is peaking, including active addresses, token transfers, and smart contract calls.
Total active addresses rose to more than 1.1 million in February, more than double from last year, while token transfers rose by one million in March, up from 750,000 in December, CryptoQuant data shows.
Smart contracts and automated protocol token transfers are emerging to record levels reflecting the growth of decentralized finance (DeFi), stablecoins, automated protocols and layer-2 ecosystems.
Ethereum Layer-2 Lisk Research Head Leon Weidman noted on Wednesday at X that Circle USDC (USDC) usage on Ethereum has reached an all-time high, Token Terminal reported.
However, despite the network's activity, the price of Ether (ETH) is down about 60% from its peak, indicating a “clear disparity between network usage and asset performance,” which Julio Moreno, head of research at CryptoQuant, called the “paradox of adoption” on Tuesday.
The findings challenge previous ideas that crypto network activity turns the asset into demand, driving price increases.
ETH price volatility driven by capital flows
Moreno added that the annual change in capitalization realized by Ethereum has turned negative, indicating that capital is leaving Ether.
“This closely aligns with ETH's price weakness and suggests that ETH's price volatility is primarily driven by capital inflows rather than network activity growth.”
RELATED: Ether Funding Volume Turns Negative: Are ETH Bears Back in Control?
ETH price is in deep bear territory.
Ether is currently trading above $2,000 in the 2022-2023 bear market, consolidating above levels seen in more than a year.
However, Ether isn't the only one suffering, as the broader crypto market is down 44%, or around $2 trillion, from the October peak.
Many altcoins are down 80% amid a liquidity drought, fueled by ongoing geopolitical conflict in a risk-aversion investment environment.
Magazine: China's '50x' blockchain boost, Alibaba-linked AI mines Bitcoin: Asia Express
