Is it time for a correction now that ETH has risen 34% in two weeks? Yes, according to on-chain measures and derivatives data.
Unless the chart shows significant downside dangers, investors are unlikely to complain about a price gain. When looking at Ether’s (ETH) current price chart, for example, one would conclude that the rising channel that has been in place since March 15 is too aggressive.
As a result, traders are understandably concerned that losing the $3,340 support could result in a retest of the $3,100 level or a 12 percent decline below $3,000. Of course, how traders position themselves, as well as the Ethereum network’s on-chain measures, have a big role.
To begin with, the Ethereum network’s total value locked (TVL) peaked at ETH 32.8 million on January 23 and has subsequently fallen by 20%. Decentralized finance (DeFi), gambling, NFT marketplaces, social networks, collectibles, and high risk all use TVL to track the number of coins deposited on smart contracts.
Furthermore, the Ethereum network’s average transaction price peaked at $8 on March 16 before rising to $15 recently. As a result, it’s important to determine if this is due to a decrease in the use of decentralised applications (DApps) or to users benefiting from layer-2 scaling solutions.
The premium on Ether futures isn’t particularly enthralling
To learn how professional traders are positioned, traders should examine Ether futures market data. The quarterly contracts are chosen by whales and market makers because they avoid the perpetual futures’ shifting funding rate.
The difference between longer-term futures contracts and current spot market levels is measured by the basis indicator. The yearly premium on Ether futures should be between 5% and 12% to compensate traders for “locking in” their money for two to three months until the contract expires.
The current Ether futures basis of 6% is just beyond the neutral market’s minimum threshold. A bearish annualised futures premium is less than 5%, while a bullish annualised futures premium is greater than 12%.
This data indicates that professional traders are not overly enthusiastic, but there has been a 4 percent or lower basis rate in recent months, indicating gloomy mood. As a result, there has been some progress, but not enough to drive overwhelming consumer demand.
The on-chain data of the Ethereum network should be examined to rule out externalities that may have altered derivatives data. Monitoring network usage, for example, can inform us whether actual use cases support Ether demand.
Metrics on the blockchain are a source of concern
The number of active addresses on a network is a rapid and reliable indicator of how well it is being used. Of course, the increased popularity of layer-2 solutions could skew this score, but it serves as a good starting point.
The current average of 593,260 daily active addresses is up 2% from 30 days ago, but it’s still nothing near the 857,520 recorded in May 2021. At least on the primary layer, data suggests that Ether token transactions are not increasing.
Traders should move on to DApp usage measures rather than focusing solely on the TVL because that statistic is largely concentrated on lending platforms and decentralised exchanges (DEX), whereas counting the number of active addresses provides a broader picture.
The number of active addresses in Ethereum DApps has decreased by 11% on a monthly basis. The results are disappointing in general because the smart contract network was created expressly to support decentralised applications.
In instance, DApps on the Polygon network had a 12 percent increase in users, while Solana (SOL) saw a 6 percent increase in users. The $3,340 daily closing support will most likely unwind until Ether transactions and DApp usage expand significantly.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.