Why did the price of Ethereum (ETH) fall today?

Ethereum (ETH) experienced a steep 9.5% correction in the early hours of December 11th. However, buyers quickly stepped up to defend the $2,220 support. Traders are now starting to question whether the Ethereum network has what it takes to restore the bullish momentum in the Ether price.

It is worth noting that this correction is consistent with the broader cryptocurrency market, as Ether’s current 6.7% decline over the past 24 hours is roughly in line with Bitcoin’s (BTC) 5.4% and XRP’s 6.6% negative performance. there is.

Is the futures market the only reason for ETH price correction?

Naturally, excessive leverage usually causes price movements to partially revert within a few minutes. The fact is that only $86 million of ETH long-term futures contracts were forced out in the last 24 hours. This figure pales in comparison to the $7.8 billion in ETH futures open interest, indicating that much of the $600 billion reduction in available positions is caused by traders themselves.

According to Coinglass, open interest in Ethereum futures on Binance has decreased by 6.8% over the past 24 hours. A similar impact was evident on the Bybit and OXK exchanges, with ETH futures open interest decreasing by 5.2% and 6.7% respectively. In contrast, open interest was flat on CME and Deribit, suggesting that retail traders were bearing the brunt of the impact.

One could argue that this adjustment is healthy because individual traders who use excessive leverage have been kicked out of the market by stop losses or the exchange’s liquidation engine. But Ether investors now have another reason to believe that the $2,400 level of December 9 has become a distant dream.

High Ethereum Network Fees Promote Competitive Blockchains

First of all, the average transaction fee on the Ethereum network is currently $7.90, which is prohibitively expensive for most users and use cases. This fee burdens opening and closing Layer 2 operations, even when transactions are batched to further reduce costs. These measures are essential to maintain the same level of security during parallel processing.

Some analysts and investors argue that Ethereum’s high fees signal success rather than failure as the ecosystem’s layer 2 solutions grow to $15.9 billion in total value locked (TVL). According to l2beat, Arbitrum One (ARB) and Optimism Mainnet (OP) dominate the field with a combined market share of 80.9%. Application-based blockchains like dYdX v3 and Immutable X also play their part.

When measured by TVL, the Ethereum network has been losing market share to its competitors. For example, since November 30th, the BSC chain’s TVL has decreased by 2% in BNB terms, while Solana Network has experienced a 5% increase in TVL measured in SOL terms. In comparison, the Ethereum network decreased by 7% over the same period, reaching 12.1 million ETH, the lowest level in more than three years.

Ethereum’s decline in TVL could be offset by the growth of EVM-compatible scaling solutions, including Polygon (MATIC). Therefore, it is necessary to examine the market share of decentralized exchanges (DEXs) on the Ethereum network to see if competing base layer solutions have also benefited.

Related: Immutable expands Web3 game payment options with Transak integration.

The Ethereum network still maintains a clear lead despite significantly higher fees than its direct competitors. However, Ethereum’s 26% weekly increase in DEX volume is much smaller than Solana, BSC Chain, or Avalanche’s 142%, 47%, and 193%, respectively. Essentially, most of the recent DEX volume growth has occurred outside of Ethereum’s layer 2 ecosystem.

Now, this data doesn’t necessarily mean that Ethereum’s $2,400 high on December 9 was driven by exaggerated derivatives leverage. contrary. Additionally, given that the decline in TVL on the Ethereum network appears to be compensated by increased demand for scaling solutions, there is no reason to believe that the December 12th price crash is a sign of further price correction.