Can Ethereum Recoup $4,000? There is a risk of ETH crashing due to fragile fundamentals.

Ethereum has performed disappointingly for investors over the past few weeks, leading to concerns that the second-largest cryptocurrency by market capitalization may have lost its luster. The cryptocurrency continues to hover around the $3,100 level, showing no significant gains. This signals weak fundamentals that could trigger a price decline.

Ethereum shows no meaningful movement.

Markus Thielen, head of research at 10x Research, pointed out some worrying developments regarding the price of Ethereum. In a new report shared with NewsBTC, he explains that Ethereum continues to underperform despite maintaining a high correlation with Bitcoin with an R-Square of 95%, while Bitcoin has reached new all-time highs.

Thielen again points to ETH’s performance during the last bull market. This is closely related to new sectors popping up on the network, such as decentralized finance (DeFi) and non-fungible tokens (NFTs). This led to a surge in demand, which in turn sent prices following as users gobbled up ETH to pay for the high gas fees required to transact on the blockchain.

However, Ethereum failed to maintain this momentum. This may be due to our inability to provide users with the upgrades they need in a timely manner. Thielen explains that the Dencun upgrades that helped solve the problem of high gas bills were three years late. Because when the upgrade arrives in 2024, users will have moved to Layer 2 networks. Other Layer 1 networks also saw user growth during this period, Solana being one example.

Source: 10x Research

The researcher also explained that ETH’s weak fundamentals are now not only impacting its price, but have also had a ripple effect on Bitcoin. “Ethereum’s weak foundations are an obstacle for Bitcoin as they prevent widespread fiat inflows into the cryptocurrency ecosystem,” Thielen said.

It is better to sell ETH

Thielen’s analysis of Ethereum also extends to the decline in stablecoin usage on the network. In 2021, Ethereum dominated stablecoin trading, including USDT and USDC. But on the other side too, high fees seem to have prompted users to move to other networks. Now, blockchains like Tron (TRX) are dominating stablecoin trading and shaking up ETH.

Moreover, there is also the fact that ETH issuance is once again becoming inflationary. After the London hard fork, also known as EIP-1559, was completed in 2021, the network shifted into issuance deflation for the first time as ETH burns quickly outpaced ETH in circulation.

However, Thielen says the situation has changed in the past few months as there is more ETH minted than burned. To put this in perspective, a total of 74,000 ETH was minted, compared to only 43,000 ETH burned. This inflation, coupled with the fact that staking rewards have now fallen to 3%, lower than the 5.1% offered by Treasury Yields, has made it difficult for Ethereum to maintain bullish sentiment.

Considering these developments, the researcher believes it is better to be bearish on Ethereum now. “At the moment, it would be more comfortable to hold a short position in ETH than a long position in BTC, as Ethereum’s fundamentals are weak and not yet reflected in the price of ETH,” Thielen concluded.

ETH price fails to hold $3,100 | Source: ETHUSD on Tradingview.com

Featured image by Watcher Guru, Tradingview.com chart

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