The on-chain and derivatives dataset signals that the price of ETH is unlikely to scale above $3,500 any time soon.
An analysis of the current Ether (ETH) price chart paints a bearish picture, largely justified by the 11% drop over the past month, but other traditional financial assets have faced larger price corrections over the same period. The Invesco China Technology (CQQ) ETF lost 31% and the Russell 2000 8%.
Ether price on FTX in USD. Source: Trade View
Traders are currently worried that the loss of the downside channel support at $2,850 could lead to more price declines, but this largely depends on the positioning of derivatives traders and the performance of the Ethereum network.
According to Defi Llama, the total value of the locked Ethereum network (TVL) has not changed in the last 30 days at 27 million ether. TVL measures the number of coins placed on smart contracts, including decentralized finance (DeFi), non-fungible token (NFT) markets, high-risk games and applications.
The average transaction fee on the Ethereum network has risen to $13 after hitting a low of $11.50 on April 20, but whether that reflects a drop in usage of decentralized applications (DApps) or whether users are simply from Tier-2 – Scaling solutions benefit, it should be analyzed. .
Ethereum futures premium is declining
Traders use data from the ether futures market to understand how professional traders position themselves, but unlike standard perpetual futures, quarterly contracts are the preferred instruments of whales and market makers as they can avoid fluctuations in the funding rate.
The basic indicator measures the difference between long-term futures contracts and current spot market levels. In neutral markets, ether futures should have an annual premium of between 5% and 12% to compensate traders for “locking” money until the contract expires.
Annual premium on 3-month ether futures. Source: Laevitas.ch
The current base of 2% Ether futures clearly shows the lack of demand for leveraged buyers. While not exactly backwardation (negative premium), an annual futures premium of less than 5% is generally considered bearish.
This data tells us that professional traders have been neutral or bearish for the past few months, but to rule out external factors that may have influenced the derivatives data, the Ethereum network data should be analyzed on the network. For example, monitoring network usage tells us whether actual use cases support demand for ether.
Metrics in the chain are sluggish
Measuring the number of active addresses on a network provides a quick and reliable measure of usage efficiency. Of course, with the increasing adoption of Tier 2 solutions, this metric can be misleading, but it works as a starting point.
Average number of active addresses in Ethereum over 7 days. Source: CoinMetrics
The current 584,477 daily active addresses are 4% down from 30 days ago and a far cry from the 675,117 in November 2021. Thus, the data shows that Ether token transactions are showing no signs of growth, at least at the primary level.
Traders should rely on the DApp usage indicators but not only focus on TVL as this metric is heavily biased toward DeFi applications. Measuring the number of active addresses provides a broader view.
DApps activity on the Ethereum network for 30 days. Source: DappRadar
The active addresses of Ethereum DApps have not changed in the last 30 days. Overall, the data is a bit disappointing, with competing networks like Solana (SOL) seeing a 34% increase in active addresses.
Until there is a decent uptick in Ether transactions and DApp usage, the $2,850 descending support channel resistance may not hold, triggering a deeper short-term price correction.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.