The price of Ethereum fell 5.2% from the 3rd to the 4th of this month, and after a strong bounce from the resistance level of $2,550, it failed to recover to this level for eight consecutive days.
Traders expect a reduction in fixed income incentives in the U.S. could see Ethereum weaken further even as the broader crypto market resumes its bull run.
So what is weighing on Ethereum prices? Some market participants believe that conditions in traditional financial markets are to blame for the cryptocurrency's slump.
While that may seem like a stretch, Ethereum has its own issues, including declining network fees, unattractive staking rewards, and a lack of demand for its recently launched physical exchange-traded fund (ETF) product.
From a macroeconomic perspective, the possibility of a Federal Reserve interest rate cut scheduled for September is likely to drive the price of Ethereum even lower.
Former Kansas City Federal Reserve Bank President Esther George has said inflation could reach 2 percent, but the Fed's credibility is questionable if the labor market weakens.
"If the labor market worsens, the Fed may be more aggressive in cutting interest rates," said Patrick Harker, president of the Federal Reserve Bank of Philadelphia.
"Expansionary monetary policy generally has a positive effect on risky asset markets, but if investors fear a recession, demand for safe assets will increase, which could lead to a rise in interest rates.
That could have a negative impact on the price of Sellum. In particular, traders are concerned about technology stocks. Nvidia shares have lost $279 billion from its market capitalization in the past three days.
Nvidia shares fell 14% in three days after two cautious research reports on the growth of artificial intelligence (AI).
Nvidia also received a subpoena from the U.S. Department of Justice on November 3 in connection with an antitrust investigation. However, factors specific to Ethereum are also contributing to its growth compared to the overall cryptocurrency market.
For example, reduced activity in Ethereum’s base layer is threatening the network’s sustainability, leading to lower fees and a relative decline in cryptocurrencies.
This reflects the successful adoption of Layer 2 scaling solutions, but could pose a risk in terms of long-term incentives.
During the week of August 31, Ethereum network fees hit a four-year low of $3.1 million, down 88% in four weeks.
This sparked criticism of the cryptocurrency’s reward model. AbstractChain contributor Cygaar noted that the data availability cost of rollups is essentially free.
"Demand for Layer 2 solutions is relatively low due to a lack of interesting consumer applications," Cygaar said.
He emphasized that the researchers questioned whether the demand for rollups was overestimated and whether gas fees are necessary for long-term network security.
2024/09/05 17:23 KST
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