Ether (ETH) is struggling to maintain the $3,000 support level, experiencing a 4.1% decline in just two days. The bearish momentum appears to be influenced by several factors, including the delay in launching an Ethereum spot exchange-traded fund (ETF) in the United States, decreased network usage, and a notable decrease in the ETH burn rate. As a result, Ether’s price has dropped by 15% since April.Recession risk increased, but stock buybacks got investors’ attentionInvestor sentiment has been further dampened by remarks made by Susan Collins, the Boston Federal Reserve Chair, who suggested that resilient inflation may force the central bank to maintain higher interest rates for an extended period. According to Yahoo Finance, Collins’ speech on May 8 highlighted the need for slower economic growth to reduce demand. As long as interest rates remain above inflation, there is less incentive for individuals and companies to take out loans for consumption or production.On one hand, the potential negative impact on corporate earnings could benefit alternative assets such as cryptocurrencies. However, if investors fear a significant recession, many are likely to seek refuge in fixed-income and cash positions. The increased stock buybacks in the U.S. market, driven by well-capitalized companies, further complicate Ether’s recovery path. Despite potential earnings growth, buybacks reduce sell pressure and compensate for a stagnant economy.While Ether’s performance might be influenced by the 3% correction in the total cryptocurrency market capitalization since May 6th, other altcoins like BNB (BNB), Tron (TRX), Cardano (ADA), and Litecoin (LTC) have outperformed Ether by 3% or more during the same period. Even when compared to Bitcoin (BTC), Ether’s price has lagged by 1.5%. This suggests that there are factors specific to Ether that are negatively impacting its price.Ether price falls amid regulatory pressure and weak network activityThe possibility of an Ethereum U.S. ETF approval was dampened after the SEC postponed its decision on the Invesco and Galaxy Digital proposal on May 6th, extending the deadline until July 2024. Moreover, the refusal of U.S. SEC Chair Gary Gensler to clarify whether Ethereum could be considered a security during his appearance on CNBC’s Squawk Box on May 7 has further eroded investor confidence in the ETF’s prospects. Gensler’s appearance followed six crypto-related lawsuits in 2024.On-chain analysis for Ethereum has been unfavorable in recent weeks. According to ultrasound.money, the burn mechanism for Ether has hit its lowest levels in 2024.The EIP-1559 protocol burns a fraction of the gas fees per transaction, so lower network demand leads to a higher ETH supply growth. The latest data shows an ETH 4,853 burn in 7 days, significantly lower than the ETH 17,628 issued in the same period. Although the 12,774 ETH supply increase in the past 7 days represents a mere 0.57% annualized inflation, the issue with Ethereum network’s lesser use becomes more concerning when considering its second layer scaling solutions.Related: Public blockchain ledgers ‘not fit for purpose,’ says JPMorganThe decline in Ethereum’s demand has impacted its ecosystem, including projects like Arbitrum, Base, Polygon and ZkSync Era. In contrast, Solana and Thorchain have shown increased activity. Similarly, Sui and Avalanche experienced a comparatively smaller decline in decentralized exchange (DEX) volumes compared to other platforms.The exact reasons behind investors’ decision to sell Ether are unclear. However, there seems to be reduced confidence in the U.S. approving an Ethereum spot instrument. Additionally, recent network health metrics for Ethereum have deteriorated. The uncertainty surrounding recent regulatory actions against the crypto industry, including Consensys, may also help explain the weakness in Ethereum’s price.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.
