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The ether (ETH)
While the ETH price had recovered more than $800 (+33%) in the space of a few days at the beginning of February after falling below the threshold of $2300 per unit, crypto-investors smiled again. But not for long. In the wake of its elder, bitcoin, which was struck against the backdrop of a diplomatic crisis and nervous stock market indices. Ether also took a hit. It must be said that both ether and bitcoin are considered risky assets and thus suffer more significantly during the turbulent times we are currently experiencing as investors move away from this asset class.
After hitting $3,200 a few days ago, the ether has shed over 19% of its valuation as of this writing. The skies are not so clear? Bearish atmospheric pressures approaching? Let's jump into the network.
BTC/ETH correlation pushed to its limits
Three-month correlation between ETH and BTC
Source: macroaxis
To begin with, it is clear that ether is following the moves of bitcoin. The correlation coefficient is +0.97 between the two cryptocurrencies. As a reminder, "+1" means that two assets are perfectly positively correlated, "-1" means that two assets are perfectly negatively correlated and "0" means that two assets show no sign of correlation.
To put it simply, when bitcoin falls it takes the ether with it and the same scenario when BTC resumes the upward path, the eth climbs too. But let's not stop there. Let's look at what's happening on the Ethereum network in terms of transactions.
The graph below represents the percentage of ether that are in profit on the network. In other words, this is the percentage of ethers that have been bought at a lower price than today.
Source: Glassnode
Currently, 73% of ethers on the network have been bought at a price below $2600 per unit. For comparison, at the July 2021 low point, when one unit of ether was equivalent to $1790, the percentage of ethers in profit outstanding on the network was 74%. We can make a quick deduction. Since between the two dates the percentage is similar, within one point, but with a price difference of $800, we understand that a large number of new players have positioned themselves between July 2021 and today. As for bitcoin, as we saw last week, we can bet that it is the investors who positioned themselves between the two dates who are currently selling at a loss.
During the Covid crash of March 2020, with an ether at $110, the percentage of ethers in profit was around 20%. In other words, more than 20% of the ethers in circulation at that time were bought at a price below $110.
New money at historic lows
Source: Glassnode
These are dark times for ETH. Currently, the percentage of ether that was purchased less than 1 month ago represents just over 5% of all ethers in circulation. This represents a lower level than the bear market of 2018-2019. Very logically, in order to restart a sustainable uptrend, new money must be injected to offset the sales. As an example, during the bull run of early 2021, this pocket of ether bought less than 1 month ago reached more than 20% of the ethers in circulation. At that point, we could say that new investors were flooding the market. Unfortunately, this is far from being the case at the moment.
Ethers are entering the platforms
Source : Glassnode
RED: Ethers are leaving the platforms. In other words, more ethers are being purchased by network players than are being put back into circulation on the platforms. Simply put, more ethers are being bought than sold on ETH.
GREEN: Ethers are flowing back into the platforms. In other words, players are dumping more of their ethers than are accumulated in wallets. To put it simply, sales are greater than purchases on ETH.
In the chart above, the trend was clear from the end of 2020 to the end of 2021: a huge amount of ETH was accumulated in investors' wallets. Since the beginning of 2022, the trend has reversed. More ethers are being put back into circulation on the platforms. It is clear that sales dominate from a transactional point of view on Ethereum.
The evolution of addresses holding a large number of ETH
Source: Glassnode
The number of addresses holding 32 ETH has never recovered its level of late 2020 when we could count more than 127,000 addresses holding at least 32 ETH. As we can see on the graph above, at the moment, this number of addresses is around 105,000. A downward trend.
Source : stateofthedapps
Although Ethereum was the first blockchain to host Dapps in 2015, and it is still hosting the most Dapps by far at the moment, we can observe that the number of new Dapps has been decreasing sharply in recent months. On the one hand, this phenomenon can be explained by Ethereum congestion, in other words, by an increase in the network's load due to the excessive number of transactions on the platform. The current structure of the network does not allow to maintain the speed of the transactions and the related fees in a balanced way. As a result, the transaction fees have exploded, which does not make the Ethereum solution economically viable for its users.
To counter these offensives, its founder, Vitalik Buterin, plans to evolve Ethereum so that it is more scalable and therefore more attractive to its users. Changes in the structure of the blockchain that I will detail very quickly in a future article.
Ethereum is almost perfectly correlated with bitcoin (+0.97). Many investors have positioned themselves between July 2021 and today on Ethereum and therefore own ethers that are in loss. Like bitcoin, we can bet that it is these investors who are currently selling the most (compared to those who are profiting by having obtained an ETH at a lower price). Too little new money is coming into the network to offset the sales. The percentage that represents the number of ETH that were purchased less than 1 month ago is below the 2018-2019 bear market More ETH are coming back to the platforms (selling) than are accumulated in the wallets (buying) The number of addresses with more than 32 ETH are down/stagnating The number of Dapps on Ethereum are down due to network saturation.While the set of metrics we've seen cannot alone constitute strong signs of change or trend pickups, they do give some insight into what's happening on the network. One very important thing to note, in my opinion, is the very strong correlation between BTC and ETH. Although the Ethereum network is far from optimal at the moment in terms of technology, in terms of speculation/investment, when BTC goes up, ETH goes up.
In a tense geopolitical context, bitcoin and ether are under pressure with an increasingly pronounced correlation with stock market indices, especially the Nasdaq. Moreover, bitcoin and its relatives are proving once again that they are not a safe haven during the turbulent times we are currently experiencing in the financial markets. When Ethereum will have changed its structure from Proof-of-Work to Proof-of-Stake, the solution provided by Vitalik Buterin's blockchain should again become economically viable for users and therefore it should win back a growing number of Dapps.
On the other hand, since 2015, many other solutions have emerged to compete with Ethereum. Solana, Cosmos, Polkadot, among others, offer new solutions with, for the time being, a relatively cheaper use of their infrastructure compared to Ethereum.
