Between March 8 and March 11, Ether (ETH) saw a 13% decline as investors shifted their focus to short-term fixed-income securities and cash, seeking a refuge amid a global trade conflict and increasing worries about an economic slowdown.
ETH must surge by 29% to reach $2.5K
Market anxieties heightened following the U.S. response to Canada’s electricity surcharge, which included retaliatory actions.
S&P 500 futures (left, magenta) vs. Ether/USD (blue).
Generally, traders tend to react strongly, which may increase the possibility of Ether rebounding more quickly than other assets as market sentiment improves. While some suggest that inflation and economic growth data drive risk assets, others believe that any gains will rely on stimulus measures and broader monetary expansion.
No matter what may spark the next bull run, Ether’s price needs to rise 29% from the current level of $1,940 in order to reach $2,500. To achieve this, there will likely need to be increased interest from leveraged buyers, currently at their lowest levels in five months.
ETH 2-month futures annualized premium.
Traders favor higher prices to offset longer settlement times, expecting a 5% to 10% annualized premium (basis rate) in neutral markets. When rates dip below this range—as is the case now at 4.5%—it indicates a lack of strong bullish sentiment.
Over-exuberance contributed to Ether’s recent drop, with $235 million in leveraged long positions being liquidated between March 10 and March 11.
The ensuing panic led ETH to a low of $1,744, its lowest point since October 2023. Nonetheless, several indicators hint at a potential rebound, as ETH derivative metrics and on-chain data demonstrate resilience.
Ethereum Layer-2 network expands
Currently, Ether trades 60% below its all-time high of $4,868 reached in November 2021. This downturn is largely attributed to increasing competition in the smart contract arena and a decline in demand for applications like non-fungible tokens (NFTs), gaming, collectibles, metaverse initiatives, social platforms, and Web3 infrastructure.
However, this viewpoint overlooks an important factor: At the end of 2021, the average transaction fee exceeded $50, while activity within Ethereum’s layer-2 ecosystem was 97% lower than it is today.
To provide perspective, a token swap on Ethereum’s base layer cost $1.70 on March 11, even as the number of daily average operations per second continued to rise, indicating significant improvements in network efficiency.
Ethereum layer-2 daily average operations per second.
Even accounting for bots generating 80% of layer-2 transactions, the remaining 20% occurring on platforms like Base, Arbitrum, Optimism, ZKsync, and Blast is still about three times greater than that on Ethereum’s base layer. Critics do have a legitimate concern, though: despite the surge in network activity, validators are earning far less than they were in late 2021.
Ethereum reclaims DEX leadership, TVL on the rise
Ethereum has solidified its status as the second-most favored choice for institutional investors within traditional finance, underpinned by $8.9 billion in spot exchange-traded funds (ETFs).
In contrast, competitors like Solana are still waiting for regulatory approval for similar ETF offerings. Even if they do receive approval, they won’t be able to rival the first-mover advantage enjoyed by the Grayscale Ethereum Trust, which began public trading on over-the-counter markets back in June 2019.
Additionally, Ethereum’s smart contract deposits, gauged by total value locked (TVL), reached their highest levels in ETH terms since July 2022 on March 11, reflecting a 10% increase over the preceding two weeks.
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Ethereum network TVL, ETH.
Currently at 24 million ETH, Ethereum’s TVL has been fueled by the growth of liquid staking, lending, yield farming, and real-world asset tokenization. The network has recently reclaimed its leading position in decentralized exchange volumes, achieving $20.5 billion over a week and surpassing Solana’s $13.9 billion, according to available data.
This trend offers a promising outlook for ETH’s price due to soaring layer-2 transactions, regaining dominance in DEX volume, and increasing TVL deposits.
Ultimately, the reversal of Ether’s trend heavily depends on macroeconomic improvements, but once stabilized, ETH is well-positioned to recover to $2,500 as a critical support level in the upcoming weeks.
This article is for informational purposes only and is not intended as legal or investment advice. The perspectives expressed here belong to the author and do not necessarily represent the views of any entity.