In the early hours of Feb. 15, Ether (ETH) price plunged to $1,660, followed by a 9% recovery within 10 hours. The move triggered $280 million in futures contracts liquidations, indicating excessive leverage from longs.
Although the initial anxiety regarding CME’s ETH futures launch on Feb. 8 seems to have faded, sustained excessive transaction fees might have undermined investors’ confidence. Nevertheless, the fundamentals behind Ethereum remain solid, indicating ETH price should promptly recover from eventual dips.
Ethereum median transaction fee, USD. Source: BitInfoCharts
Even though the above metric might be interpreted positively, not every user can afford a $12 fee. A simple token swap on decentralized exchanges (DEX) can cost hundreds of dollars in gas fees, leaving small traders no choice but to abandon the network.
Multiple proponents are testing sharding and layer-two solutions to circumvent this issue, including Skale and Optimistic Network. Eth2 will use sharding to split the blockchain into several parts and increase the number of transactions the network can process at once.
Total value locked remains in an uptrend
The phenomenal growth of total value locked (TVL) in decentralized finance projects can’t be disregarded. The adjusted metric attempts to clean readings from ETH price increases, therefore providing more reliable data.
Adjusted total value locked, USD. Source: DappRadar
As depicted above, the 34% increase over the past 30 days falls in line with ETH’s 38% gain in February. Regardless of the transaction fees, there is still value created by automated market-making pools and staking mechanisms.
To better understand whether the recent crash reflects a potential local top and subsequent downtrend movement, one needs further data. Besides price action and technical analysis, investors should also gauge on-chain metrics such as network use. An excellent place to start is analyzing transactions and transfer value.
ETH/USD price (line) vs. transactions and transfers (area). Source: Coin Metrics
Coin Metrics data shows the 14-day average transactions and transfers rallying above $9 billion in daily transactions, a 32% increase from the previous month. This significant increase in transaction and transfer value signals strength and suggests that Ether’s price is sustainable at the current levels.
Exchange withdrawals indicate long-term holding
Although there is no consensus among analysts on the short-term price impact of exchange withdrawals, its effect is either neutral or bullish. The opposite movement, large continuous inflows, is the only bearish scenario, as it indicates holders’ willingness to sell.
ETH/USD price (black) vs. exchanges ETH reserve (red). Source: CryptoQuant
From Jan. 1 to Feb. 15, roughly 600,000 ETH was withdrawn from exchanges. Regardless of if whales are transferring to cold wallets or putting Ether into the DeFi ecosystem, those coins are less likely to be sold in the short term.
Considering this movement happened while Ethereum made a $1,870 all-time high, the indicator indicates holders’ confidence.
To conclude, based on both on-chain metrics and trading perspective, there are encouraging signals that $2,000 is within reach and that dips are being bought up aggressively.
author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.