Declining DApp activity and lackluster demand for the ETH ETFs could limit Ethereum’s recent price rally.
ETH$2,599.26
price surged 9.4% between Oct. 10 and Oct. 15, reaching its highest level in two weeks at $2,687. However, despite these recent gains, Ether remains down 25% over the past three months, reflecting investor disappointment with the recently launched spot Ether exchange-traded funds (ETFs) and the overall lack of demand for ETH, despite Ethereum’s focus on prioritizing layer-2 scaling solutions.
In the past 7 days, the Ethereum network saw a 23% decline in onchain decentralized applications (DApp) volumes and this downturn has sparked speculation that Ether’s price could follow suit.
Drop in onchain activity sparks concerns for Ether investors
While various factors have negatively affected Ether’s price since mid-July, it is particularly striking that the overall cryptocurrency market capitalization remained relatively flat over the same three-month period.
Excluding stablecoins, the total cryptocurrency market cap declined by just 2% to $2.09 trillion over the 90-day period, whereas Ether’s price dropped significantly, from $3,450 to $2,590. This widening gap suggests that investor sentiment toward Ether’s potential has deteriorated. Therefore, it is important to explore the possible reasons behind this underperformance. One contributing factor could be the decline in Ethereum’s total value locked (TVL).
The latest data from DefiLlama shows that Ethereum’s total value locked (TVL) has stagnated at around 19 million ETH over the past two months. This is not particularly alarming, considering that Ethereum’s $48 billion in onchain deposits represents a dominant 55% market share in the cryptocurrency sector. For comparison, BNB Chain’s TVL has also remained relatively stable at approximately 8.1 million BNB during the same period.
Thus, it is worth assessing how the recent decline in Ethereum network DApp volumes compares to its competitors.
Ethereum’s 7-day DApp volumes fell to $21.5 billion. However, several competitors faced similar outcomes, including BNB Chain
BNB$593.69
, which saw a 33% drop, and the Solana
SOL$153.59
network, where volumes were 26% lower than the previous week. Even with the lackluster performance, there is no clear indication that Ether’s price will drop significantly based on this data alone.
Notable areas of weakness within the Ethereum network include Uniswap, which experienced a 16% decline in activity in the week ending Oct. 14, and Balancer, which saw a dramatic 54% drop in activity. Other key players such as CoW Swap and 1inch Network also posted weaker performance, with onchain volumes down 18% and 23%, respectively.
Reduced ETH ETF demand and a drop in the supply burn rate impact investors’ thesis
In addition to these factors, some of the frustration among Ether investors stems from the lack of inflows into the US-based spot Ether ETFs. According to data from Farside Investors, these ETFs have seen net outflows of $6 million in October. In contrast, similar Bitcoin
BTC$66,805
ETFs saw net inflows of $810 million between Oct. 11 and Oct. 14, suggesting that investor demand exists but is currently favoring Bitcoin over Ether instruments.
Ethereum investors are disappointed as its supply continues to increase despite high network usage. Vitalik Buterin, in an Oct. 14 blog post, acknowledged this issue and suggested that improving transaction times through solutions like single-slot finality could help. Currently, Ethereum transactions can take around 15 minutes, leading to congestion and limiting the network’s efficiency.
Related: Vitalik Buterin sells another $1.6M in memecoins promised for charity
In comments to Cointelegraph, a Binance spokesperson explained that the recent Ethereum network upgrades “led to the increased adoption of lower-fee layer-2 solutions,” which in turn has reduced the ETH supply burn rate. This shift gained momentum following the activation of EIP-4844 in April 2023, a development specifically designed to enhance the efficiency of layer-2 rollups by bundling and processing transactions more effectively.
In essence, while the decline in Ethereum DApp volume merely reflected the broader cryptocurrency market trends, the adoption of lower-fee layer-2 solutions and reduced ETH supply burn have contributed to Ether’s recent underperformance.