Why did the Ethereum (ETH) price drop today?

Ether (ETH) has not closed above $2,500 since September 2, and has underperformed the broader altcoin market by 4% over the past eight days. Some analysts attribute this to outflows from the recently launched spot ETH exchange-traded fund (ETF), while others attribute it to a decline in interest in decentralized applications, airdrops, and mimecoins.

External factors have also contributed to the Ethereum price weakness, including increased regulatory uncertainty due to the upcoming US presidential election in November.

Ether Price Drops Amid Declining Retail Investor Interest in Cryptocurrencies and Regulatory Uncertainty

Google search results for “buy cryptocurrency” show an interesting pattern, with the peak coinciding with Ether’s all-time high of $4,094 in 2024.

However, after a two-month decline, Ether recovered to $3,989 on May 19, just 2.5% below its previous high. Nevertheless, retail interest had already waned by then. This trend is not limited to Ether, but it shows how quickly traders lose enthusiasm.

This dynamic creates an anomaly when analyzing on-chain metrics such as Total Value Locked (TVL), as many blockchain projects and venture capital funds have capitalized on previous token launches and price peaks, but retail investors have lost interest. These boom and bust cycles are common in industries where traders tend to enter during bull markets, especially when leverage is involved.

So even if there is no big crash like FTX or Luna this cycle, traders may have become indifferent and need new impetus to re-enter the market. Previous bull markets have been driven by altcoins, utility tokens, memecoins, NFTs, games, metaverse projects, and more recently, Web3 infrastructure and AI. History doesn’t necessarily repeat itself, but it often rhymes.

In a broader sense, Ethereum is facing negative pressure from the regulatory environment. The current US administration is known for its staunch anti-cryptocurrency stance, evidenced by legal actions against major exchanges such as Coinbase, Binance, and Kraken. Additionally, top decentralized applications on Ethereum, including Uniswap, Metamask, and OpenSea, have come under scrutiny from the US Securities and Exchange Commission (SEC).

Ethereum on-chain metrics show low demand for ETH usage.

While these regulatory measures do not directly impact the core operations of the Ethereum network, they have a significant negative impact on investor interest in developing and offering services in the U.S. For example, many airdrops and project launches exclude North American residents from participating, while investment firms and market makers are increasingly reluctant to deal with intermediaries based in the U.S. As a result, regulatory uncertainty is significantly slowing the growth and adoption of the Ethereum ecosystem.

When evaluating the price drivers of Ether, it is important to consider the role that memecoins, token distributions, and airdrops play in driving demand for Ether. The rapid increase in project launches and trading activity provides a dual incentive to purchase Ether. Many projects require Ether to interact with DApps and participate in offers, even if the token distribution is free. Additionally, the surge in demand for these token launches often increases gas fees, which must be paid using Ether.

relevant: Congressional Elections Are Crucial to the Future of Cryptocurrency in the US

Ethereum overall activity has declined, with DappRadar reporting that active addresses across DApps have dropped 19% month-over-month, while total transactions have dropped 34%. In particular, Uniswap’s NFT aggregator has seen a 60% drop in active addresses, while staking platform Etherfi has seen an 80% drop in users over the past 30 days.

Investor sentiment towards Ethereum has been dampened by significant outflows from spot ETH ETFs, which saw net outflows of $96 million during September. Most of the selling pressure came from Grayscale’s Ethereum Trust ETF (ETHE), primarily due to higher-than-average fees. At the same time, major names such as BlackRock, Fidelity, and Ark 21Shares attracted only a combined $20 million inflows, according to data from Farside Investors.

Ether’s current price slump reflects declining retail interest, reduced activity on the Ethereum network, and decreased demand for airdrops and token launches.