Why is the price of Ethereum (ETH) underperforming compared to the broader crypto market?

Ether (ETH) price fell 5.2% between September 3 and September 4 after a strong rejection at $2,550 resistance, marking eight days since closing above that level.

Traders are now concerned that Ether may be underperforming even if the broader crypto bull market continues, as incentives to earn fixed income in the United States are thought to be waning. So what is putting pressure on the price of Ether?

Will the ether drop if the tech stock bubble pops?

Some market participants may attribute the poor performance of cryptocurrencies to traditional financial market conditions, but Ether is facing challenges of its own, including low network fees, unwanted rewards and weak demand for its recently launched spot exchange-traded fund (ETF). Products. Therefore, it is worth exploring whether these factors will continue to drive down the price of Ether in the future.

From a macroeconomic perspective, there is uncertainty over the outcome of the US Federal Reserve's imminent decision to cut interest rates, which is expected to begin in September. Former Kansas City Fed President Esther George said there is still hope for inflation to reach 2 percent, but the Fed's credibility could be questioned, especially if the labor market weakens, Yahoo Finance reported.

In addition, Philadelphia Fed President Patrick Harker said the Fed's interest rate cuts could be more aggressive if the labor market continues to deteriorate. Normally, a more expansionary monetary policy favors risk-averse markets, but if investors fear a recession is looming, demand for safe-haven assets will increase, causing traders to shelter in safe-haven investments, which could negatively impact the price of Ether.

Traders are particularly concerned about the technology sector, especially after Nvidia shares lost a record $279 billion in market capitalization on Sept. 3. The chipmaker fell 14 percent in three days after two cautious reports on growth in the artificial intelligence sector. In addition, NVD was subpoenaed on November 3 as part of an antitrust investigation by the United States Department of Justice.

However, several factors unique to Ether may underperform relative to the broader crypto sector. For example, reduced activity on Ethereum's base layer resulted in lower payments, which posed a threat to the sustainability of the network. Some argue that this reflects the successful adoption of layer-2 screening solutions, but it still represents a risk in terms of long-term incentives.

In the year In the week of August 31, Ethereum network fees fell to their lowest level in more than four years, reaching $3.1 million, according to Defillama. This 88% drop in four weeks has led to criticism of Ethereum's compensation model. One such critique, posted by Saigar, a contributor to AbstractChain, blames this failure on the cost of data provisioning for packages.

Cigar highlights the relatively low demand for Layer-2 solutions due to the lack of “exciting consumer-facing applications” to help restore healthy payment levels. The analyst questions whether researchers have overestimated demand for aggregators and whether gas costs are important to long-term grid security.

Reducing Ethereum network fees and weak spot Ether ETF flows

In addition to the decline in network fees, Ether is struggling against ETF products, which saw $47 million in net flows on September 3 alone. In fact, these devices have grossed $475 million since their launch in the US market on July 23. A lack of interest from investors, especially institutional interest, is seen as a major part of Ether's appeal.

Related: ETH Resurgence Driven by Annual Stock Price Decline – P2P.org

Contributing even more to Ether's price decline is the relatively low 3.2% staking reward, especially when weighed against the current 0.7% annual inflation rate, according to StakingRewards. The yield is lower than most U.S. government bonds, and the failure to deliver the “ultrasound money” narrative promoted by some analysts could frustrate investors.

Ultimately, factors weighing on Ether's price — such as declining network fees and less demand for ETF products — show no signs of reversing anytime soon. Although this does not guarantee that Ether's price will stay below $2,550, it does suggest that ETH is unlikely to outperform the broader crypto market in the near future.

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.