Ether (ETH) gained 16.2% on August 8, but struggled to hold above $2,600 on August 9. Despite encountering stronger resistance at $2,700, Ether is well positioned to extend its bullish trend, aided by a more favorable macroeconomic backdrop and increased activity on the Ethereum network and Layer 2 solutions.
Are Spot Ether ETF Outflows Hurting ETH Performance?
Some investors have argued that outflows from spot EtherETFs have hampered performance. However, this may change as Grayscale’s ETHE product sales slow. The fund has historically charged much higher fees than other funds, and most investors were previously locked in because the Trust did not allow redemptions.
Ethereum educator Sassal highlights that according to Farside Investors data, Grayscale’s ETHE recorded its lowest ever outflow of $20 million on August 8, suggesting the trend is heading towards zero. Grayscale’s ETHE still holds $5 billion worth of ETH, so even if flows stabilize in the short term, there is still potential risk.
On the positive side, traditional financial investors are increasingly confident that the US Federal Reserve (Fed) will cut interest rates throughout 2024. A lower cost of capital stimulates investment, creating a market that offers a trade-off between risk and return, as fixed yields become less attractive.
Boston Federal Reserve Bank President Susan Collins said the economy is growing at a pace that will allow for a strong labor market, according to Bloomberg. Collins added that the Fed will soon begin to shift to a less restrictive monetary policy as inflation is trending back toward the Fed’s 2% target.
Ethereum network data supports bullish price momentum.
Despite the macroeconomic changes, the Ethereum network has made significant progress, paving the way for increased demand for Ether and a corresponding decrease in inflation as more ETH is burned as competition for the blockchain space intensifies. This bullish momentum is further supported by a 55% increase in decentralized application (DApp) activity on Ethereum over the past seven days.
The surge in activity on Ethereum was led by leading decentralized exchange (DEX) Uniswap, followed by 1inch Network and CoW Swap. Other notable contributors include Curve, InstaApp, and Morpho Optimizer. Most importantly, Ethereum’s dominance in the DEX industry remains unrivaled, with $21 billion in trading volume over the past seven days, far outpacing rival Solana’s $14.4 billion, according to DefiLlama data.
Ethereum’s success is further highlighted by its total value locked (TVL), which reached 19.7 million ETH, the highest level since November 2022, up 9.4% month-over-month. According to DefiLlama, this growth was driven by platforms such as Aave, Zircuit Staking, Curve Finance, Magpie Ecosystem, and Mellow Protocol. In comparison, BNB Chain’s TVL remained stagnant at around 8.7 million Binance Coins (BNB) over the past month.
Ethereum Layer-2 Solutions Activity Hits All-Time High
Critics claim that Ethereum’s average transaction fee of $3.85 is limiting its adoption. However, this view overlooks the significant impact of second-level scaling solutions, including Base, Arbitrum, Blast, Optimism, and Mantle. According to L2Beat data, they together account for $11.7 billion in native TVL, and $36.7 billion when including bridge deposits.
relevant: Vitalik Buterin Moved $8 Million of Ether to a New Wallet. Will He Be Able to Donate in the Future?
In fact, Ethereum Layer-2 activity approached an all-time high on August 7, processing an average of 318 transactions per second, which was driven by the growth of networks like Xai, Base, and Proof of Play, according to L2Beat. In short, Ethereum’s scaling solution is now processing 24x more transactions than the base chain, highlighting the success of recent upgrades aimed at reducing the operational costs of rollups.
Given that the Ethereum network is strengthening in terms of activity and deposits, Ether is well positioned to reclaim the $3,000 level in the short term, barring any major external shocks to investor risk sentiment.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.