Investors are not likely to complain about price rallies, unless the chart is presenting steep downside risks. Analyzing Ether’s (ETH), current price chart can lead to the conclusion that the ascending channel from March 15 is too aggressive.
Price of Ether at FTX in USD Source: TradingView
It is natural for traders to be concerned that losing the $3340 support could result in a retest at the $3100 level or a correction of 12% down to $3,000. This will depend on the position of traders and on-chain metrics.
First, the Ethereum network’s total valued locked (TVL), peaked at ETH 32.8million on January 23rd and has since fallen by 20%. TVL is the total number of coins that have been deposited onto smart contracts. This includes decentralized finance (DeFi), gaming and NFT marketplaces. It also includes collectibles, high risk, and high-risk.
The average transaction fee for Ethereum was $8 on March 16, but it has increased to $15 recently. It is important to determine if this is due to a lower use of decentralized apps (DApps), or users who are benefiting from layer-2 scale solutions.
The futures premium for Ether is not very exciting
To understand the position of professional traders, Ether futures market data should be analyzed by traders. Because they do not fluctuate in funding, the quarterly contracts are preferred by market makers and whales.
Basis indicators measure the difference between the current spot market levels and longer-term futures contracts. To compensate traders who “lock in” the money for up to three months, the annualized Ether futures premium should be between 5% and 12%
Annualized premium for Ether 3-month futures. Source: Laevitas.ch
The current Ether futures basis of 6% is slightly higher than the minimum threshold to be considered neutral. A futures premium that is less than 5% annually is considered bearish. However, numbers over 12% are considered bullish.
These data show that pro traders are not excited, but there has been a 4% basis rate or less in the last few months which indicated bearish sentiment. There has been an improvement in the market, but not enough for buyers to demand too much.
Analyzing the Ethereum network’s onchain data is a good way to exclude externalities from derivatives data. Monitoring the network usage can tell us whether the actual use cases support Ether demand.
On-chain metrics raise concerns
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
Although the current average of 593,260 active addresses per day is up 2% from 30 days ago it’s still not as high as the 857,520 recorded in May 2021. Data indicates that Ether token transactions have not shown any signs of growth on at least the primary layer.
Traders should continue to DApp usage metrics, but not exclusively on TVL. TVL is heavily focused on lending platforms (DEX), so it’s better to gauge the number of active addresses.
Dapps activity for Ethereum network 30 days. Source: DappRadar
On average, Ethereum DApps experienced a 11% monthly decrease in active addresses. The data is disappointing, as the smart contract network was designed to host decentralized applications.
Comparatively, DApps on Polygon gained 12% and Solana (SOL), a 6% increase in users. The $3,340 daily close support is likely to be canceled unless Ether transactions and DApp usage show significant growth.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.