Ethereum Price Analysis: Why is ETH Under-Performing This Year?

TLDR:

• Ethereum (ETH) price is underperforming compared to the broader crypto market
• ETH price dropped 5.2% between Sept. 3-4, facing resistance at $2,550
• Factors include declining network fees, weak spot ETF demand, and low staking rewards
• Macroeconomic uncertainty and potential tech stock bubble are additional concerns
• ETH price is attempting recovery but faces resistance around $2,400-$2,440

Ethereum, the second-largest cryptocurrency by market capitalization, has been underperforming compared to the broader crypto market in recent weeks. This article examines the factors contributing to ETH’s price struggles and its attempts at recovery.

Between September 3 and 4, Ethereum’s price dropped by 5.2%, facing strong resistance at the $2,550 level. The cryptocurrency has been unable to close above this price point for eight consecutive days, raising concerns among traders about its ability to keep pace with a potential crypto market resurgence.

As of the latest data, ETH is trading below $2,440 and the 100-hourly Simple Moving Average.

The price is currently attempting a recovery, having moved above the $2,365 and $2,380 resistance levels. However, it faces significant hurdles near the $2,400 mark, with a bearish trend line forming resistance at this level.

Factors Contributing to ETH’s Underperformance

1. Declining Network Fees: Ethereum network fees have dropped to their lowest level in over four years, reaching $3.1 million in the week ending August 31. This 88% decline over four weeks has led to criticism of Ethereum’s compensation model and raised concerns about long-term network security.
2. Weak Spot ETF Demand: Ethereum’s spot ETF products have seen significant outflows, with $47 million leaving on September 3 alone. Since their U.S. market debut on July 23, these instruments have recorded $475 million in outflows, indicating a lack of institutional interest.
3. Low Staking Rewards: Ethereum’s relatively low 3.2% staking reward, when factoring in the current 0.7% annualized inflation rate, is less attractive compared to most U.S. government bonds. This has disappointed investors who were expecting higher yields.

Macroeconomic Factors and Tech Sector Concerns

The broader economic landscape is also influencing Ethereum’s performance:

1. Federal Reserve Policy: Uncertainty surrounds the U.S. Federal Reserve’s potential interest rate cuts, expected to begin in September. While a more expansionary monetary policy typically favors risk-on markets, fears of a looming recession could drive investors towards safer assets.
2. Tech Stock Volatility: Concerns about a potential tech stock bubble, exemplified by Nvidia’s recent $279 billion market cap loss, are creating unease in the crypto market. As Ethereum is often correlated with tech stocks, this volatility could be impacting its price.

Recovery Attempts and Future Outlook

Despite these challenges, Ethereum is attempting a recovery. The price has climbed above the 23.6% Fibonacci retracement level of the recent downward movement. However, to gain significant upward momentum, ETH must clear the $2,440 resistance level.

If Ethereum fails to break through this resistance, it could face further decline, with support levels at $2,365 and $2,350. A move below these levels could push the price towards $2,310 or even $2,250 in the near term.