On Monday, Ether sharply dropped to $3,045, breaking through the psychologically important level of $3,000. This drop reflects the overall trend of moving away from risk assets. Traders fear that the bull market has ended after a 40% correction from the August high of $4,956.
ETH/USD rate and altcoin market capitalization. Source: TradingView
Ether’s dynamics almost completely mirror the behavior of the rest of the altcoin market, indicating a lack of its own catalysts. Perhaps traders have simply shifted to assessing more global macroeconomic factors. If ETH had clear problems, such as worsening fundamentals or increased competition, it would start lagging behind altcoins. But that is not happening yet.
According to analysts, the current decline is linked to growing concerns about global economic growth. In the US, this includes the government shutdown, new import tariffs, weak reports from consumer sector companies, and increasing doubts about the future of the artificial intelligence industry. Even despite high profitability, data centers are already facing rising costs and energy constraints.
Annualized premium on two-month ETH futures. Source: laevitas.ch
Demand for long positions in ETH has remained low for over a month. The futures premium has not risen above the “neutral” 5%. This is partly explained by how market pressure affects companies accumulating Ether reserves. Among them are Bitmine Immersion (BMNR US), SharpLink Gaming (SBET US), and The Ether Machine (ETHM US).
These companies built up their ETH reserves through debt and share issuance. Now they are experiencing unrealized losses, as their shares are trading below net asset value, including crypto. Even if direct sell-offs are not yet imminent, investor interest in the sector is noticeably declining. This leads to a drop in demand for new debt instruments and gradually dilutes the share of current shareholders.
The drop in on-chain Ethereum activity cooled bulls’ interest
Weak activity on the Ethereum network also negatively affected investor sentiment. When network load decreases, demand for Ether falls and supply rises. The ETH burn mechanism only plays a significant role when demand for block space is high. Therefore, the slowdown in dApp usage hurts interest in Ether staking.
TVL on the Ethereum network and DEX volumes in US dollars. Source: DefiLlama
Total deposits on the Ethereum network (TVL) have dropped to a four-month low — $74 billion. This is 13% lower than a month ago. Trading volume on decentralized exchanges on Ethereum was $17.4 billion over the past 7 days, which is 27% lower compared to the previous month. Ethereum still leads in TVL, but competition in trading volumes is increasing.
Blockchains by 30-day DEX trading volume, in US dollars. Source: DefiLlama
Critics may argue that networks like BNB Chain and Solana are too centralized, while Ethereum leads if you include the second-layer ecosystem. Scaling solutions such as Base, Arbitrum and Polygon have indeed increased Ethereum‘s throughput. But at the same time, they’ve raised questions about fees. Rollups process transactions outside the main network, which sharply reduces demand for gas payments on the base layer.
Blockchains by number of transactions in 7 days. Source: Nansen
Nevertheless, the growth of activity on second-layer networks does not threaten Ethereum‘s position at all. On the contrary, the expansion of a scalable ecosystem has only strengthened its leadership in the tokenization of real-world assets (RWA) and decentralized stablecoins such as Sky (formerly MakerDAO). The Base network alone processed almost 102 million transactions in a week — comparable to the figures of larger networks by users and deposits, such as Solana.
See also: Zcash returns above $700 and sparks a new wave of debate with the Bitcoin community
The future of Ether largely depends on a decrease in global socio-political instability. Especially considering that the US is facing growing pressure due to rising government debt. Sooner or later, central banks will be forced to inject liquidity into the economy, and in that case Ether will be among the main beneficiaries. Such a scenario could trigger a retest of the $3,900 level.
