ETH price holds above $3,000 but network data shows bulls may be trapped
Analyzing the ETH price chart, it can be concluded that the 3-month downtrend has been broken due to several reasons. The current price range of $3,100 comes after recovering by 43% in 15 days and more importantly, the descending channel resistance was broken on February 24th.
But should ETH price bulls start celebrating and expect a price of $4,000 and above?
That largely depends on the location of retailers as well as on-chain indicators of the Ethereum network. For example, will the additional $30 transaction fee affect usage of decentralized applications (dApps), or are there other factors preventing ETH’s ability to increase in price?
ETH price chart and descending channel | Source: TradingView
As ETH price corrected 55.6% from $4,870 to a cycle bottom of $2,160 on Jan. 24, Bitcoin was unable to break the $45,500 resistance and traders concluded that a Correction of 12% is the most likely scenario.
On Feb. 7, Canadian Big Four accounting firm KPMG announced the addition of Bitcoin and ETH to its coffers. This decision demonstrates KPMG Canada’s belief that cryptocurrencies are a “mature asset class,” according to Benjie Thomas, the company’s managing partner.
Derived data tells a different story
To understand how confident traders are in ETH price resilience, it is wise to analyze perpetual futures data. The instrument is popular with retail traders as its prices tend to follow the regular spot market.
In any futures trade, the long (buyer) and short (seller) are always matched, but their leverage is different. As a result, the exchanges charge a funding rate to the party that needs more leverage, and that fee is paid to the other party.
financing rate 8 hours ETH Perpetual Futures | Source: coin jar
This indicator shows us if retailers are excited which could cause it to move above 0.05% or 1% per week. In recent months, the funding rate has been slightly negative, reflecting bearish sentiment. There is currently no indication that retail traders are confident enough to re-open leveraged long positions.
Should the on-chain data analysis of the Ethereum network also be analyzed to understand if the lack of trust is unique to leveraged trading? For example, although there is no established relationship between ETH price and network usage, low transaction volumes and less active users could pose a problem if separated from the bull run.
On-chain indicators are cause for concern
Measuring the monetary value of ETH price traded on the network provides a reliable indicator of efficiency. Of course, this metric can be spoofed with increasing adoption in Layer 2 solutions, but it’s still a starting point.
Total number of original token units transferred per day | Source: CoinMetrics
The current average daily trade is $6.2 billion, down 55% from the December high and not too far off the 1-year low of $5.6 billion. Therefore, it can be concluded that ETH token usage is not showing any signs of growth, at least in the mainstream.
Analysts should also review usage metrics for decentralized applications. It should be noted that Total Value Locked (TVL) is heavily focused on lending platforms and decentralized exchanges (DEXs). Therefore, the assessment of the number of active addresses provides a broader view.
Dapp activity for 30 days on the Ethereum network | Source: DappRadar
Outside the Opensea NFT marketplace, Ethereum dApps are down 28% in monthly active addresses. Overall, usage data is disappointing as the smart contract network was specifically designed to host decentralized applications.
Unless ETH transaction counts and dApp usage metrics spike, investors will interpret any move above $3,000 as a potential bull trap. The neutral funding rate from retailers can also be a positive sign that investors often enter leveraged long positions after a strong rally.
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