The recent surge in the price of Ethereum (ETH) faced resistance as it approached the $1,970 level on July 3. Several factors have contributed to this rally’s slowdown, including concerns about potential interest rate hikes and tighter cryptocurrency regulations.
Macroeconomic Headwinds from the Fed
Apart from external factors, the Ethereum network has experienced withdrawals from its smart contract applications, which have also hampered the rally witnessed in June. The anticipation of further tightening measures by the U.S. Federal Reserve, signaled by Fed Chair Jerome Powell’s suggestion of two more interest rate hikes in 2023, coupled with rising capital costs and better returns on fixed-income investments, have dampened interest in cryptocurrencies.
Regulatory Challenges
The regulatory landscape has added pressure to Ethereum’s price rally. Recent noteworthy events include the European Union lawmakers’ advancement of the Data Act, which imposes new requirements for smart contracts, and the search of Binance Australia’s offices by local authorities, part of an ongoing probe into its derivatives business. These developments have raised concerns among investors and created a tighter regulatory environment for cryptocurrencies.
Declining Ethereum Network Demand
The Ethereum network is facing its own challenges, reflected in the decreasing total value locked (TVL) in its smart contracts. TVL, measuring the deposits locked in Ethereum’s smart contracts, reached its lowest level since August 2020. A decline of 3.1% to 13.7 million ETH in the 30 days leading up to July 4 indicates waning investor interest in smart contract usage or migration to layer-2 alternatives seeking lower transaction fees. These factors negatively impact the potential demand for the Ethereum network.
Leveraged Long Positions and Options Market Analysis
Examining professional traders’ positions in ETH derivatives provides insights into the likelihood of breaking the $1,970 resistance level. Despite Ether’s narrow trading range from June 22 to July 4, professional traders increased their leveraged long positions in futures contracts, as observed through the long-to-short ratio. Additionally, analyzing ETH options markets reveals a balanced demand for call and put options, indicating both cautious optimism and no prevalent fear of an Ether price crash.
Considering these four reasons – increased leverage long-to-short ratio, declining TVL, potential interest rate increases, and tighter cryptocurrency regulation – ETH bears hold a better position to impede the positive price impact resulting from the Bitcoin ETF saga. While they may not be sufficient to drive the ETH price down to $1,700, they present significant obstacles for ETH bulls. Historical attempts to break $2,000 have been short-lived, suggesting that, in the short term, bears are favored to defend the $1,970 resistance level.
Disclaimer: This article provides general information and should not be considered legal or investment advice. The author’s opinions expressed here do not necessarily reflect those of Cointelegraph.