Ethereum price fails to rally in the face of good news — Here’s why
Ether’s failure to respond to good news could be rooted in investors’ perception that macroeconomic conditions are worsening.
Ether has been under pressure since June 7, when it lost its $3,800 support level. Despite a series of positive developments, its price remained below $3,600 on June 19, showing no weekly change.
Some analysts believe that the primary reason for the bearish momentum is a lack of institutional demand for cryptocurrencies. Others attribute it to regulatory uncertainty within the Ethereum ecosystem.
Ethereum ecosystem risk persists despite regulatory clearance for ETH
Noelle Acheson, author of the Crypto is Macro Now newsletter, expressed surprise at Ether’s lack of positive momentum following Consensys’ victory over the regulator. She also questions whether other regulatory issues related to staking could be deterring investor interest.
On June 18, Ethereum ecosystem developer Consensys announced that the United States Securities and Exchange Commission (SEC) had concluded its investigation into whether Ethereum could be considered a security and the company’s role in ETH sales. Consensys had initiated legal action against the SEC in April after receiving a Wells notice, which warned it that its MetaMask wallet might have breached securities laws.
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Ether’s downturn coincided with Bitcoin , the leading cryptocurrency, facing rejection near $72,000 on June 7. This occurred as investors grew concerned about the United States’ fiscal health, exacerbated by high interest rates and deteriorating economic indicators such as rising wages and an increasing jobless rate. In May, U.S. average hourly earnings rose by 0.4% month-on-month, while the unemployment rate increased to 4.0% from 3.9% in April.
Despite potential benefits to cryptocurrencies from worsening macroeconomic conditions in the medium to long term, history has shown that investors tend to withdraw from risk assets when the risk of a recession becomes imminent. The U.S. two-year Treasury yield fell from 4.94% on May 30 to 4.71%, indicating that investors were aggressively purchasing these fixed-income instruments.
Dan McArdle, the co-founder of Case4Bitcoin, noted that as long as the macroeconomic environment remains stable, cryptocurrency appears reasonably priced, and its long-term bullish trend should continue. However, McArdle warns that a “macro shock” or a sharp correction in the S&P 500 would negatively impact cryptocurrencies in the short to medium term. Therefore, the current lack of interest in Ether could reflect investors’ heightened concerns about a potential recession.
In addition to the recent Consensys development, regulatory news for Ether has been overwhelmingly positive. SEC Chair Gary Gensler confirmed that the launch of U.S. spot Ether exchange-traded funds (ETFs) would occur within three months. However, Ethereum faces its own challenges, including persistently high network processing fees, which have exceeded $4 over the past week.
Recession risks and potential lack of demand for the spot Ether ETF
Despite the growth of layer-2 scaling solutions such as Optimism, Base, Arbitrum and zkSync, some decentralized application (DApp) volume has shifted to competitors like Solana, BNB Chain and THORChain.
According to DappRadar, Ethereum remains the leader in DApp volumes over the last 30 days, but it faces stiff competition. Competitors such as Solana, Aptos, Celo and Fantom have significantly outpaced its growth. Additionally, the number of active addresses interacting with DApps on the Ethereum network has dropped by 40% in 30 days, while Solana and Aptos saw increases of 58% and 115%, respectively.
Ether’s failure to surpass $3,600 despite the imminent launch of spot ETFs and the SEC’s regulatory clarification that ETH is not a security includes worsening macroeconomic conditions and potential uncertainties regarding additional regulatory charges for token issuers, wallet providers and exchanges — a risk highlighted by Acheson.
Lastly, the recent four days of consecutive net outflows from the spot Bitcoin ETFs raise concerns about whether Ethereum instruments will attract significant inflows as their launch approaches. Investors are worried that Grayscale’s Ethereum Trust Fund might suffer outflows when it is converted to an ETF, similar to the issues that have affected the Grayscale Bitcoin Trust due to its high management fee.
