Ethereum On-Chain Data Suggests Further Fall in ETH Price

The current price chart for Ethereum (ETH) paints a bearish picture, largely justifying an 11% drop over the past month, but other traditional financial assets faced more extreme price corrections during the same period. The Invesco China Technology ETF (CQQ) fell 31%, while the Russell 2000 lost 8%.

For now, traders are concerned that losing the support of the descending channel at $2,850 could lead to a steeper price drop, but this will largely depend on how derivatives traders position themselves and on-chain metrics for the Ethereum network.

According to Defi Llama, the total value locked (TVL) of the Ethereum network has remained flat over the past 30 days at 27 million ETH. TVL measures the amount of tokens deposited on smart contracts, including decentralized finance (DeFi), NFT marketplaces, games, and high-stakes applications.

The average transaction fee on the Ethereum network has risen to $13 after bottoming out at $11.50 on April 20, but one should analyze whether this reflects reduced use of decentralized applications (DApps) or simply a shift in users from second-tier Benefit from extended solutions.

Ethereum’s futures contango tilts towards bears

Traders use ethereum futures market data to understand how professional traders are positioned, but unlike standard perpetual futures, quarterly contracts are the vehicle of choice for whales and market makers because they avoid volatile funding rates.

The basis measure measures the difference between the long-dated futures contract and the current cash market level. In a neutral market, the annualized premium for Ethereum futures should be between 5% and 12% to compensate traders for “locking up” funds before the contract expires.

The current 2% ETH futures basis clearly shows a lack of demand for leveraged buyers. While not exactly in backwardation (negative contango), an annualized contango of less than 5% is generally considered bearish.

These data tell us that professional traders have been neutral-bearish for the past few months, but in order to rule out external factors that may affect the derivatives data, the on-chain data of the Ethereum network should be analyzed. For example, monitoring network usage tells us whether actual use cases support demand for Ethereum.

Slow on-chain metrics

Counting the number of active addresses on the network provides a quick and reliable indicator of active usage. Of course, this metric can be misleading by the increasing adoption of layer 2 solutions, but it can serve as a starting point.

The current average of 584,477 daily active addresses is 4% lower than 30 days ago and well below the 675,117 in November 2021. As a result, the data shows that Ethereum token transactions are showing no signs of growth, at least on one level.

Traders should rely on the DApp usage metric, but should avoid focusing only on TVL as this metric is mostly focused on DeFi apps. Measuring the number of active addresses provides a broader view.

Active addresses for Ethereum DApps have flattened out over the past 30 days. Overall, the data is slightly disappointing considering that altchains such as Solana (SOL) saw a 34% increase in active addresses.

The descending support channel resistance at $2,850 may not hold unless there is a sizable increase in Ethereum transactions and DApp usage, triggering a deeper short-term price correction.