Ethereum crashes to $1,770 in one of the worst days for the first cryptocurrency by market capitalization in 2021. At the time of writing, it has regained the high around these levels and is trading at $1,991 with a gain of 4.6% on the daily chart.
newly Report By Glassnode Insights, written by Luke Posey, looks at the implications of this price action in the Ethereum ecosystem. The analyst believes that both cryptocurrency and DeFi token prices are showing weakness with no catalyst effect expected at EIP-1559.
The Ethereum network has seen low activity and its transaction fees have dropped to levels last seen in the summer of 2020. Most of the activity has been taken through decentralized exchanges with Uniswap The number is still dominant on this scale.
The DEX segment experienced the highest growth in the ecosystem with an increase of 5,600% year-over-year in volume terms. This metric was combined at about $2 billion per day with an increase in periods of extreme volatility.
Bossi said that DeFi participants are growing high-return stablecoin pairs to accumulate governance tokens. Analyst said:
Activity stopped from its previous exponential growth as participants mostly sat idle during lateral moves. We can see short bursts of activity during price volatility, however it slows down rapidly as prices stabilize.
On the other hand, long-term ETH holders are more content with their accumulation. Governance token holders may have seen more downsides as the bears deepen their assault on these assets.
The analyst added that the number of new users on Ethereum has been stable. During April and May, one of the worst months for the price of ETH, this metric hit 18% and 25%, respectively.
High user growth can be a bullish metric for owners as it is a key metric for adoption, but it is also a key metric for determining if there are marginal token buyers. While growth by total number of users remains strong, growth as a percentage is flattening the curve.
USDT Demand Drops on Ethereum During Market Crash
Reducing the demand for USDT On Ethereum it is an important metric for understanding the current price action. An increase in the supply of stablecoins usually leads to two scenarios: increased transaction fees and high market volatility with the potential for upward momentum.
If the opposite happens, and high demand and activity returns to the chain, ETH price may react to the upside. Meanwhile, short-term ETH holders have seen their gains turn into losses as the total loss for these investors has reached 25% of the market capitalization.
This creates a scenario where many short-term holders decide to liquidate their investments for a loss if the price of ETH continues to fall. On the contrary, they can be more convinced to stay, if the price moves to the upside with more conviction. Analyst said:
(…) We can conclude that large amounts of ETH were purchased during the run, from about $2.2 thousand to ATH, all of which are now under water. The risk is that these investors may be liquidated as prices rise to a cost basis (STH-NUPL = 0). Conversely, if contentment remains high, it may hold out throughout any fluctuation that comes next.