Ethereum Experiences a Dip in User Activity Amid Market Turbulence
As the cryptocurrency market faces a widespread downturn, user engagement on the Layer-1 (L1) network Ethereum has considerably dropped to its lowest point of the year. This decline coincides with the fall of Ethereum's native token, ETH, below the $3,000 threshold for the first time since November.
With a prevailing bearish sentiment, there is a possibility that ETH may continue its downward trajectory in the short term.
ETH witnessed a significant decrease in user activity, with a dip in the number of active addresses on its network. On February 2, ETH plummeted to $2,143, marking a five-month low before experiencing a slight recovery. Alongside the general market decline, the reduction in active addresses on Ethereum's network has played a significant role in the coin's struggles.
Glassnode data reveals that on February 2, the daily count of active addresses on the Ethereum network hit a year-to-date low of 420,346.
The diminishing number of active addresses on Ethereum indicates a decline in user engagement, leading to lower transaction volumes and interaction with decentralized applications on the blockchain. This decreased demand could negatively impact ETH's price momentum, as reduced transactions result in lower network utility and a lower burn rate, potentially making ETH more inflationary.
The circulating supply of ETH has increased by 12,066 tokens over the past week, valued at over $31 million at current market prices, according to Ultrasoundmoney.
The inflow of more ETH tokens into circulation can lead to an excess supply surpassing demand, typically resulting in a price decrease. Currently trading at $2,595, ETH has experienced a 16% decline in price over the past 24 hours, with a negative Balance of Power (BoP) suggesting strong selling pressure.
The negative BoP indicates a bearish momentum, signaling potential downward pressure on ETH's price. Should the downtrend persist, ETH's value may drop to $2,500, and a further decline to $2,224 could be possible if the $2,500 support level is breached.
On the flip side, a positive shift in market conditions could drive ETH's price up to $2,811.