The price of Ethereum shows strength, but the 23% decrease in DApps activity is cause for concern

The price of Ether (ETH) increased by 9.4% between October 10 and October 15, reaching a two-week high of $2,687. However, despite these recent gains, Ether has fallen by 25% over the past three months, reflecting the recently launched Ether Exchange-Traded Funds (ETFs) and a general lack of interest among investors in ETH, despite Ethereum's focus on multiples. . 2 size solutions.

Over the past 7 days, the Ethereum network has seen a 23% drop in onchain decentralized applications (DApp) volumes, and this decline has led to speculation that the price of Ether may follow suit.

A drop in onchain activity poses a threat to Ether investors

While various factors have been negatively impacting Ether's price since mid-July, it is surprising that the overall cryptocurrency market capitalization has remained relatively flat over the same three-month period.

Excluding Stable Science, the total cryptocurrency market cap fell 2 percent to $2.09 trillion over the 90-day period, while the price of Ether fell significantly, from $3,450 to $2,590. The widening of this gap indicates that investors' sentiment towards Ether has deteriorated. Therefore, it is important to investigate the possible causes of this low performance. One contributing factor could be the decrease in Ethereum's total value locked (TVL).

According to the latest data from Defilama, Ethereum's Total Value Locked (TVL) has stood at around 19 million ETH in the past two months. This is not particularly shocking considering that Ethereum's $48 billion in onchain deposits represents a 55% market share in the cryptocurrency sector. For comparison, BNB Chain's TVL has remained relatively stable at approximately 8.1 million BNB over the same period.

Therefore, it is worth evaluating how the recent drop in DAP volumes of the Ethereum network compares to its competitors.

Ethereum's 7-day DApp volume drops to $21.5 billion. However, several competitors experienced similar results, including BNB Chain (BNB), which showed a 33% decrease, and Solana (SOL) network, whose volumes were 26% lower than last week. Despite the poor performance, there is no clear indication that the price of Ether will drop significantly on this data alone.

Among the notable weaknesses in the Ethereum network were Uniswap, which saw a 16% decline in activity at the end of October 14, and Balancer, which saw a 54% decline in activity. Other key players such as CoW Swap and 1inch Network posted weak performances, with onchain volume down 18% and 23%, respectively.

Reduced demand for ETH ETFs and declining supply will impact investor sentiment.

In addition to these factors, some of the frustration among Ether investors stems from the lack of flow into US-based Ether ETFs. According to data from Farside Investors, these ETFs saw net inflows of $6 million in October. In contrast, similar Bitcoin (BTC) ETFs saw net inflows of $810 million between Oct. 11 and Oct. 14, indicating investor interest but currently favoring Bitcoin over Ether instruments.

Ethereum investors are disappointed with the increasing supply despite high network usage. Vitalik Buterin, in a blog post on October 14, acknowledged this problem and suggested that improving transaction times could help with solutions such as single-slot finality. Currently, Ethereum transactions can take around 15 minutes, leading to congestion and limiting the efficiency of the network.

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In comments to Cointelegraph, a Binance spokesperson explained that the recent improvements to the Ethereum network “has led to the addition of low-fee layer-2 solutions”, which will reduce the rate of burning the supply of ETH. This change culminates with the launch of EIP-4844 in April 2023, a development specifically designed to increase efficiency in integrating and processing Layer-2 packet exchanges.

Essentially, while Ethereum's DAP rate decline may only reflect broader crypto market trends, the adoption of lower-fee Layer-2 solutions and reduced ETH supply burn have contributed to Ethereum's recent underperformance.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.