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Market Insights

Ethereum approaching key support

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Ethereum continues to struggle, and recently broke through short term support levels. It’s now closing in on the key support zone around $1650.

Ethereum one day price movement

Interestingly, the correlation with the Nasdaq isn’t holding. Ethereum couldn’t rally on Thursday even as the US tech index put in a strong performance, closing up 2.79% on the day and now 700 points above the 11500 lows seen last Friday.

What’s up with Ethereum?

It’s hard to put it down to just one factor. Clearly the overall macro environment isn’t as supportive as it once was for riskier assets such as crypto. Rising interest rates and tighter financial conditions around the world are a big factor.

As are questions about the stability of stablecoins, and just how much regulation will be required…

According to data from coinmarketcap, the total crypto market cap has fallen from almost $3 trillion at the end of last year, to approximately $1.2 trillion now. But that’s still about a trillion more than it was five years ago…

 Total crypto market cap from coinmarketcap

Since Terra’s collapse, blockspace demand on the Ethereum network has fallen, and gas fees are now in the doldrums too. In fact, chain-tracker Santiment say they’re the lowest since July 2021:

Ethereum’s average fees are at an extreme low, costing traders just $2.54 per transaction currently. This is the lowest ETH cost level since July. Historically (but by no means automatically), ETH prices rise after average transactions dip below $5.

Ethereum is also going through a bit of an identity crisis. Moving from a proof-of-work system (where miners compete for rewards based on computational power) to a proof-of-stake system (validators stake ether and are rewarded for validating transactions).

The idea of this shift, known as The Merge (Eth 2.0) is that it will increase the number of transactions that the Ethereum chain can handle, while reducing the energy required and lowering the transaction time.

Ethereum-co founder Vitalik Buterin added some context on a recent podcast:

“Just to give some concrete numbers, today Ethereum is on average doing about 15 to 20 transactions a second. These are complex transactions. A lot of them are significantly more complex than what Bitcoin does. If you just did money transfers, then it could go up to about 50 transactions a second with current settings. But if we just move to Layer 2s, then we could go up to about 5,000 transactions a second.”

But there’s no guarantee that this will work, or be a significant improvement. As with many things crypto, it’s untested because it doesn’t exist yet, and sometimes new incentives lead to unexpected outcomes.

Still, progress on the layer 2 ecosystem is the latest innovation to monitor, even as new competitors such as Solana try to chip away at Ethereum’s market…

Vitalik’s resolve is solid, even as the future looks uncertain:

“In Ethereum we value solving the problem of both having the ecosystem that can do a lot of stuff and having the digital rock in the middle to keep it solid. Whether or not we’ll succeed is, of course, up to the next decade of world history to decide.”

Not investment advice. Past Performance is not indicative of future results. Trading cryptocurrency may not be available depending on your country of residence.

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