Ether (ETH) price is down on Dec 16 and the pre-FOMC rally to $1,350 was extinguished after Federal Reserve Chair Jerome Powell issued hawkish statements following a 0.50% rate hike.
Ether’s sell-off follows a market-wide decline that has seen Ethereum’s network fees plunge 39.90% over the past 30 days.
Daily Ethereum network fees and daily active users. Source: TokenTerminal
The total value locked in Ethereum-based smart contracts also fell by 4.49% over 24 hours due to decentralized finance.
In the wake of the FTX exchange scandal, regulators are trying to speed up new regulations for the cryptocurrency sector.
Total USD value locked on the Ethereum network. Source: Defillama
While some analysts believe Ethereum still has multiple bullish catalysts to warrant investing in the asset, on-chain data paints a bleak picture of its near-term price prospects.
Here are three reasons why Ether price is down today.
Ethereum becomes inflationary when total revenue falls
Ether price fell as daily fees on the Ethereum network dropped to $2.9 million compared to the pre-FTX level of $12.8 million on June 13. In addition to falling fees, the network saw fewer daily active users (DAUs) than it had on July 26 at 961,196 users down to just 367,000 DAUs on December 16.
Post-Ethereum Merge Tokenomics were designed to help Ether become deflationary. However, with gas fees falling and DAUs reduced, Ethereum has inflated by 0.073% over the past 30 days, adding over 7,100 ether. According to Ultra Sound Money, the Ethereum network has inflated by over 1,192 Ether since the merger.
Ethereum supply. Source: ultra sound money
A drop in DeFi usage coincides with Ether’s price action
The locked total value metric is a common way to examine the health and sentiment of a Proof of Stake (PoS) blockchain like Ethereum. Ethereum’s TVL hit a yearly high of $83.9 billion on March 31, but since then it has lost almost $60 billion. As of December 15, the network’s TVL is $23.46 billion.
The top 10 Ethereum protocols by market cap faced headwinds, with all seeing a decrease in TVL and fees over a 7-day period. Notably, MakerDao and Uniswap (UNI) saw TVL declines of 5.82% and 3.49%, respectively.
Ethereum network DeFi protocols ranked by market cap. Source: DeFiLlama
Regulatory pressures continue to weigh on investor confidence
On August 9, the Invest in America Act passed Congress and was signed into law by President Joe Biden. Members of the blockchain community have blasted the bill over what they say is harmful language. The law is scheduled to come into force in January 2024.
If ether is considered a security in the United States, centralized exchanges (CEX) could be forced to delist the altcoin for US-based customers. The security classification could also negatively impact Ethereum-based altcoins, DApps, and decentralized exchanges (DEX). The Securities and Exchange Commission (SEC) has yet to decide whether Ether passes the Howey test.
The announcement by the Commodity Futures Trading Commission (CFTC) to declare ether a commodity does not seem to take away investors’ fears either.
Investor expectations for 2023
Despite the looming Shanghai hard fork that will allow users to unstake Ether in March 2023, Ether price is likely to remain under pressure.
While investors’ appetite for risky assets and their interest in DeFi may continue to wane, factors such as clarity on regulators’ stance on cryptocurrencies and the eventual proliferation of Ethereum’s network-based protocols could prove to be a long-term catalyst for price growth.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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