Ethereum Price Shows Strength But 23% Drop In DApp Activity Raises Concerns

Decreased DApp activity and weak demand for ETH ETFs could hinder Ethereum's recent price surge.

Source: www.btchaber.com

Ether's price jumped 9.4% from October 10 to October 15, reaching a two-week high of $2,687. However, despite these recent gains, Ether is still down 25% over the past three months, reflecting investor disappointment with the newly launched spot Ether exchange-traded funds (ETFs) and the overall weak demand for ETH, even as Ethereum focuses on enhancing layer 2 scaling solutions. In the past week, the Ethereum network experienced a 23% drop in on-chain decentralized application (DApp) volumes, raising concerns that Ether's price might follow this downward trend.

Decline In On-Chain Activity Raises Alarm For Ether Investors

Since mid-July, several factors have negatively impacted Ether’s price, yet it's notable that the overall cryptocurrency market capitalization has remained relatively stable during this three month period. Excluding stablecoins, the total cryptocurrency market cap decreased by only 2%, settling at $2.09 trillion, while Ether's price fell significantly from $3,450 to $2,590. This widening gap indicates a deterioration in investor sentiment toward Ether’s potential, prompting a closer look at the reasons behind this underperformance.

One possible factor is the stagnation in Ethereum’s total value locked (TVL). Recent data from DefiLlama reveals that Ethereum's TVL has remained steady at around 19 million ETH over the past two months. While this is not particularly alarming given that Ethereum holds a commanding 55% market share with $48 billion in on-chain deposits it does suggest a lack of growth. In comparison, BNB Chain's TVL has also been stable at roughly 8.1 million BNB during the same timeframe.

Assessing the recent decline in Ethereum's DApp volumes relative to its competitors is also essential. Ethereum's 7-day DApp volumes dropped to $21.5 billion, but several rivals faced similar challenges. BNB Chain experienced a 33% decline, while Solana saw a 26% reduction in volumes compared to the previous week. Despite this lackluster performance, there is no definitive evidence suggesting that Ether’s price will face a significant drop based solely on these metrics.

Within the Ethereum network, specific areas show notable weaknesses. Uniswap reported a 16% decline in activity for the week ending October 14, and Balancer faced a substantial 54% drop. Other prominent platforms, such as CoW Swap and 1inch Network, also experienced reduced performance, with on-chain volumes decreasing by 18% and 23%, respectively.

Decreased ETH ETF Demand And Declining Supply Burn Rate Affect Investor's Thesis 

Frustration among Ether investors also stems from the lack of inflows into US based spot Ether ETFs. Data from Farside Investors shows that these ETFs experienced net outflows of $6 million in October. In contrast, similar Bitcoin ETFs enjoyed net inflows of $810 million between October 11 and October 14, indicating that investor interest is currently leaning toward Bitcoin rather than Ether. Moreover, Ethereum investors are disheartened as the supply continues to grow despite high network usage. In a blog post on October 14, Vitalik Buterin addressed this concern and suggested that enhancing transaction speeds with solutions like single-slot finality could help. 

Currently, Ethereum transactions can take about 15 minutes, which causes congestion and limits the network's efficiency. An exchange spokesperson noted that recent Ethereum network upgrades have led to increased adoption of lower fee layer 2 solutions, resulting in a decreased ETH supply burn rate. This trend gained traction after the activation of EIP 4844 in April 2023, which was designed to improve the efficiency of layer 2 rollups by more effectively bundling and processing transactions. In summary, while the decline in Ethereum DApp volume reflects broader trends in the cryptocurrency market, the shift toward lower fee layer 2 solutions and the reduced ETH supply burn rate have played significant roles in Ether's recent underperformance.

Disclaimer: FameEX makes no representations on the accuracy or suitability of any official statements made by the exchange regarding the data in this area or any related financial advice.