The current price chart for Ether (ETH) shows a bearish picture. This is partly due to the 11% price drop in the last month. However, other traditional financial assets experienced more severe price corrections during the same time period. The Invesco China Technology ETF, (CQQ), is down 31% while the Russell 2000 fell by 8%.
Price of Ether at FTX in USD Source: TradingView
Traders fear losing the $2,850 descending channel support could cause a stronger price decline. However, this all depends on how the derivatives traders position themselves along with the Ethereum network’s on-chain metrics.
According to Defi Lama, the Ethereum network’s total value locked has fallen to 27 million Ether in the past 30 days. TVL is the total number of coins that have been deposited onto smart contracts. This includes decentralized finance (DeFi), marketplaces for nonfungible tokens (NFT), gaming, and high-risk applications.
After hitting $11.50 on April 20, the average transaction fee for Ethereum rose to $13. One should examine whether it is due to decreased use of DApps or if users are benefiting from layer-2 scaling solutions.
Futures premium for Ether tilts towards bears
Ether futures market data is used by traders to analyze how professional traders are positioned. However, unlike perpetual futures, quarterly contracts are preferred instruments by whales and market makers because they avoid fluctuating funding rates.
The basis indicator is a measure of the difference between the current spot market levels and longer-term futures contracts. The annualized premium for Ether futures should be between 5% and 12% in neutral markets to compensate traders who “lock in” the money to the expiration of the contract.
Annualized premium for Ether 3-month futures. Source: Laevitas.ch
The lack of demand from leverage buyers is evident in the current 2% Ether futures base. A futures premium annualized below 5% is often deemed bearish, even though it’s not a backwardation (negative premium).
This data shows that pro traders were neutral-to-bearish over the past few months. However, to eliminate externalities that could have influenced derivatives data one should analyze the Ethereum on-chain data. Monitoring the network usage can tell us whether the actual use cases support Ether demand.
Sluggish on-chain metrics
The number of active addresses in a network is a reliable indicator of effectiveness. This metric is not perfect and could be misinterpreted by layer-2 solutions. However, it serves as a starting point.
Average 7-day daily number of active addresses on Ethereum Source: CoinMetrics
Average daily active addresses of 584,477 are a decrease of 4% from 30 days ago, but nowhere near the 675.117 recorded in November 2021. Data shows that Ether token transactions have not shown any signs of growth on at least the primary layer.
DApp usage indicators should be relied upon by traders, but they should avoid focusing on TVL as that metric is too focused on DeFi applications. A broader view can be gained by gauging the number active addresses.
Dapps activity for Ethereum network 30 days. Source: DappRadar
Over the past 30 days, Ethereum DApps active addresses has remained flat. The data is somewhat disappointing considering that other chains like Solana (SOL), saw an increase of 34% active addresses.
The $2,850 descending resistance channel resistance may not be able to hold unless Ether transactions and DApp usage show decent growth. This could trigger a deeper price correction.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.