Ether (ETH) price faced a significant setback after encountering robust resistance at the $4,100 mark on March 12. Ether has seen a 9% decline over the past week, underperforming when compared to the broader cryptocurrency market, leading traders to speculate whether the current support level of $3,200 will hold. For context, the total cryptocurrency market capitalization fell by 2.5% during the same timeframe.
Ether’s bullish prospects hinge on spot Ether ETF approval
From a bullish viewpoint, the potential approval of a spot Ethereum exchange-traded fund (ETF) remains a key catalyst. The United States Securities and Exchange Commission (SEC) is currently reviewing the matter, with a final decision anticipated by May 23. However, Bloomberg senior ETF analyst James Seyffart does not consider approval as his base scenario.
The recent upgrades to the Ethereum protocol should not be overlooked. The Dencun hard fork, which took place on March 13, aimed at enhancing the network's scalability and improving layer-2 data processing capabilities, is highly sought after by rollup solutions. As a result, transaction fees for most applications on Arbitrum, Optimism, and Base have significantly decreased.
Cointelegraph notes that, in theory, Dencun’s enhancements are expected to encourage Ethereum users to embrace layer-2 solutions. Data indicates a surge in 7-day volumes for Arbitrum, Optimism, and Base by 145%, 144%, and 203%, respectively, thereby alleviating some of the downward pressure on Ether’s price that was attributed to high gas fees.
It's worth noting that competitors like BNB Chain (BNB) and Solana (SOL) provide significantly lower transaction fees at the base layer, which often appears more accessible to newcomers. Despite the positive impact on Ethereum’s ecosystem, Solana’s decentralized application (DApps) volumes have increased by 57% over the last week, according to DappRadar.
Regulatory challenges could adversely affect Ether’s price
The bearish outlook for Ether’s mid-term price is bolstered by the increasingly complex regulatory environment in the United States. Cointelegraph reported on March 20 that the SEC is scrutinizing companies for possible connections with the Ethereum Foundation, aiming to classify Ether as a security.
This move by the SEC was reportedly sparked by Ethereum’s transition from a proof-of-work to a proof-of-stake network, with several U.S.-based companies being asked to submit financial records and documents related to their interactions with the Ethereum Foundation.
Market experts, including Van Buren Capital and lawyer Scott Johnsson, suggest that the SEC's probe into Ether's status as a security serves as "an additional pretext to deny" the spot Ether ETF applications. However, this perspective is not universally shared, with Coinbase’s chief legal officer, Paul Grewal, arguing, "The SEC has no valid reason to reject the Ether ETP applications."
To understand if professional traders flipped bearish after Ether’s price decline, one should use the ETH options 25% delta skew as a proxy. A skew metric rising above 7% indicates anticipations of a price drop, whereas a negative 7% skew typically reflects bullish sentiment.
From March 21 to the present, the ETH options 25% skew has increased from 0% to 5%, suggesting a cautious skepticism toward the $3,200 support level. However, one might argue that despite an 11% correction in Ether's price over a week, the skew metric has stayed in neutral territory, showing little sign that bearish sentiment has intensified.
Looking at the bigger picture, the Ethereum network maintains its leading position in terms of deposits, with a total value locked (TVL) of $94 billion. The initiative by BlackRock, the world's largest asset manager, to launch a tokenized asset fund on Ethereum solidifies the network's prominence. Consequently, there seems to be no compelling reason to doubt that Ether's support at $3,200 will break in the near term.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.