Ether (ETH) has been under pressure since it lost the $3,800 support level on June 7. Despite a series of positive developments, the price remained below $3,600 on June 19, with no weekly changes.
Some analysts believe that the main reason for the bearish momentum is the lack of institutional demand for the cryptocurrency. Others attribute this to regulatory uncertainty within the Ethereum ecosystem.
Despite regulatory approval for ETH, Ethereum ecosystem risks persist.
Noelle Acheson, author of the ‘Crypto is Macro Now’ newsletter, expressed surprise at Ether’s lack of positive momentum following Consensys’ victory over regulators. She also questions whether other regulatory issues related to staking could hinder investor interest.
On June 18, Ethereum ecosystem developer Consensys announced that the U.S. Securities and Exchange Commission (SEC) had concluded its investigation into whether Ethereum can be considered a security and the company’s role in ETH sales. Consensys took legal action against the SEC in April after receiving a Wells notice warning that the MetaMask wallet may have violated securities laws.
Ethereum’s decline coincided with that of major cryptocurrency Bitcoin (BTC), which faced a rejection near $72,000 on June 7. This comes as investors grow increasingly concerned about the financial health of the United States, which has been exacerbated by high interest rates and worsening economic indicators such as rising wages and a recession. Unemployment rate increases. In May, the average hourly wage in the United States rose 0.4% compared to the previous month, and the unemployment rate rose from 3.9% in April to 4.0%.
Despite the potential benefits of cryptocurrencies from worsening macroeconomic conditions in the medium to long term, historically, investors tend to withdraw from risky assets when the risk of recession is imminent. The yield on U.S. two-year Treasury notes fell to 4.71% from 4.94% on May 30, indicating investors are buying these bonds aggressively.
Case4Bitcoin co-founder Dan McArdle noted that as long as the macroeconomic environment remains stable, cryptocurrency prices should appear reasonable and the long-term bullish trend should continue. However, McArdle warns that a “macro shock” or sharp correction in the S&P 500 will have a negative impact on cryptocurrencies in the short to medium term. Therefore, the current lack of interest in Ethereum may reflect heightened investor concerns about a potential recession.
In addition to recent Consensys developments, regulatory news for Ether has been overwhelmingly positive. SEC Chairman Gary Gensler has confirmed that the launch of a U.S. spot Ethereum exchange-traded fund (ETF) will occur within three months. However, Ethereum faces its own challenges, including persistently high network processing costs, which exceeded $4 last week.
Recession risk and possible lack of demand for spot Ether ETFs
Despite the growth of layer 2 scaling solutions such as Optimism, Base, Arbitrum, and ZKSync, some decentralized application volume has shifted to competitors such as Solana, BNB Chain, and THORChain.
Related: An Ethereum ETF filing modified by Bitwise reveals that Pantera is interested in purchasing $100 million.
According to DappRadar, Ethereum has maintained its lead in DApp volume over the past 30 days, but is facing stiff competition. Competitors such as Solana, Aptos, Celo, and Fantom have significantly outpaced their growth. Additionally, the number of active addresses interacting with DApps on the Ethereum network decreased by 40% in 30 days, while Solana and Aptos increased by 58% and 115%, respectively.
The failure of Ether to exceed $3,600 despite the imminent launch of a spot ETF and regulatory clarification from the SEC that ETH is not a security reflects the potential uncertainty associated with deteriorating macroeconomic conditions and additional regulatory costs for token issuers, wallet providers, and exchanges. Includes. Noel Acheson.
Lastly, the recent four consecutive days of net outflow from spot Bitcoin ETFs raises concerns about whether Ethereum will attract significant inflows as its product launch approaches. Investors are concerned that when Grayscale’s Ethereum trust fund ETHE is converted to an ETF, high fees could lead to outflows similar to the issues that affected GBTC.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.