The past week has been tumultuous for Ether (ETH), the native token of the Ethereum network. It experienced an 8.2% decline, leaving investors wondering about the factors contributing to this price drop. This article delves into the reasons behind Ether’s recent struggles, highlighting the challenges posed by its unpredictable monetary policy, token sales by influential individuals, and the underwhelming performance of futures-based exchange-traded funds (ETFs).
Throughout 2022, the Ethereum network underwent substantial upgrades that resulted in a significant alteration to its coin issuance mechanism. The changes introduced a burn mechanism to decrease the supply of Ether tokens and established a supply schedule known as “ultrasound money.” This innovative approach saw a net decrease in the total ETH supply as the number of burned coins exceeded the number issued for most of 2023.
However, September 2023 witnessed an inversion in the coin issuance equation due to reduced network activity and dynamic base fees. The result was an increase in the supply of ETH by 30,064 tokens in the past 30 days. While these mechanisms are functioning as designed, the reduced demand for transactions raises concerns about network congestion and persistent high fees, issues that layer-2 scaling solutions have only partially addressed.
Another factor impacting Ether’s price is the recent sales made by influential individuals in the Ethereum community. Vitalik Buterin, the co-founder of Ethereum, sent 3,999 ETH to exchanges in the past five weeks, worth approximately $6.4 million. This movement has sparked speculation among community members, given the magnitude of the sale. A recent transaction on Oct. 7 indicates that the ETH was likely exchanged for fiat currency on Bitstamp. However, with 36,000 ETH still held in an address associated with Buterin, equivalent to $57.2 million, the motivations behind these sales remain uncertain.
The Ethereum Foundation has also made a sale of 1,700 ETH, converting it into $2.74 million worth of stablecoins on Oct. 9 using Uniswap. Analysts have noted that these actions align with the foundation’s regular requirements for operational expenses, grants, and incentives. However, their impact on market sentiment cannot be overlooked, contributing to concerns around Ether’s price performance.
Furthermore, the on-chain activity of a crypto wallet address linked to the FTX exploiter has raised eyebrows within the community. Initially holding 175,496 ETH, a significant portion of this Ether was moved to the THORChain router and subsequently converted into Threshold Network’s tBTC, an ERC-20 tokenized version of Bitcoin (BTC). This move prompted THORSwap to suspend conversion transactions on Oct. 6 following consultations with advisors, legal counsel, and law enforcement.
The motivations behind this conversion remain speculative, with some hypothesizing that the FTX hacker anticipated higher returns in fiat currency terms. However, the ultimate reason for converting ETH into a wrapped version of Bitcoin remains unclear, adding to the uncertainties surrounding Ether’s price.
Since November 2022, Ether’s price trend against Bitcoin has been unfavorable, lagging behind by 25.7% over the past 11 months. This underperformance has caused the ETH/BTC ratio to breach the critical support level of 0.06. Several factors contribute to this negative sentiment, including regulatory risks faced by tokens and exchanges, such as the lawsuits against Binance and Coinbase brought by the U.S. Securities and Exchange Commission in June 2023.
Recent developments involving futures-based Ether ETFs on the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) have also dampened Ether’s price. During the first week of trading, these ETFs attracted less than $10 million in aggregate assets under management, falling short of market expectations. The disappointment surrounding the ETF launch has added to the overall negative sentiment surrounding Ether and has impacted its price performance.
Ether has faced numerous challenges in recent times that have contributed to its price decline. The unpredictable nature of its monetary policy, token sales by influential figures like Vitalik Buterin and the Ethereum Foundation, and the underwhelming performance of futures-based ETFs have all played a role. As the Ethereum network continues to evolve and adapt, it remains to be seen how these factors will impact Ether’s price in the long term. Investors must navigate these challenges and carefully evaluate the ecosystem to make informed decisions about their Ether holdings.