- Ethereum ETFs posted $44.5 million in outflows last week, spearheaded by Grayscale's ETHE.
- The Layer 1's trading volume and transaction count dropped significantly as investors became increasingly risk-averse.
- Ethereum could continue consolidating after it failed to break above a key rectangle's resistance.
Ethereum (ETH) is down nearly 3% on Monday following a decrease in key metrics, including institutional interest, trading volume and transaction count. The decline is also evident in ETH's price, which has failed to overcome a key price resistance.
Daily digest market movers: Ethereum suffers historical August decline
Spot Ethereum ETFs in the US had a total net outflow of $44.5 million last week after recording seven consecutive days of negative flows. While the "new eight" saw minor inflows, the impact of Grayscale's ETHE $118 million outflows offset their positive flows.
The weak flows negatively affected ETH's price with a low weekly gain of 3%. To add insult to injury, the Ethereum Foundation potentially sold 35K ETH on Friday when the market saw a brief rise.
In comparison, Bitcoin ETFs have posted seven consecutive days of net inflows despite outflows in Grayscale's GBTC. This pattern suggests declining institutional interest in Ethereum, even with the market anticipating a rate cut from the Federal Reserve (Fed).
The Ethereum blockchain trading volume and transaction count in August also indicate waning investor interest in the top altcoin. According to data from The Block, the 7-day moving average of daily trading volume on the top Layer 1 dropped from $6.56 billion on July 26 to $2.9 billion on Monday.
While the decline may have been attributed to the recent market crash, Ethereum's monthly transaction count also dropped to 27.27 million — a low last recorded in May 2020 — with only five days left in August. This confirms a risk-averse attitude among investors that aligns with a historical summer decline for Ethereum.
On the bright side, Coinbase analysts David Duong and David Han highlighted that the decline in Ethereum activity this August wasn't as heavy as that of previous years.
"The decrease in ether trading volumes in August compared to the preceding three months has been a modest 7.7%, compared to the average 16.8% decline observed over the last five years," noted Coinbase analysts.
ETH technical analysis: Key resistance prevents reclaim of key support level
Ethereum is trading around $2,700 on Monday, down 2.5% on the day. In the past 24 hours, ETH has sustained liquidations worth $21.35 million, with long and short liquidations accounting for $17.17 million and $4.17 million, respectively.
Ethereum tested the resistance at $2,817 on Saturday but quickly retraced after reaching its highest price since the market crash on August 5.
The price decline after ETH posted a long-legged Doji candle confirmed the reversal. Doji candles reflect indecision among traders and are often used to detect price/trend reversals.
ETH/USDT Daily chart
The move has kept ETH's price trading within a key rectangle, as reflected in the chart above. A daily candlestick above the upper horizontal line resistance would see ETH reclaim a major support level that held for nearly six months. If ETH completes such a move, it could begin trading within another key rectangle and rally toward the resistance around $3,542.
A breakout above $3,542 could see ETH tackle its yearly resistance at $4,093 and establish a new all-time high. The 200-day and 100-day Simple Moving Averages (SMA) serve as potential resistance.
The Simple Moving Average (SMA) of the Relative Strength Index (RSI) has been rising since posting a lower low on August 15. If the SMA crosses above its midline, it signals a potential bullish momentum reversal.
Since August 10, the Awesome Oscillator (AO) has been posting consecutive lower green bars. If these green bars continue and the AO moves above zero, it will also signal a potential bullish reversal.
In conclusion, ETH may consolidate for a few weeks before staging a proper rally. A daily candlestick close below the support at $2,111 will invalidate the thesis.
Cryptocurrency metrics FAQs
The developer or creator of each cryptocurrency decides on the total number of tokens that can be minted or issued. Only a certain number of these assets can be minted by mining, staking or other mechanisms. This is defined by the algorithm of the underlying blockchain technology. Since its inception, a total of 19,445,656 BTCs have been mined, which is the circulating supply of Bitcoin. On the other hand, circulating supply can also be decreased via actions such as burning tokens, or mistakenly sending assets to addresses of other incompatible blockchains.
Market capitalization is the result of multiplying the circulating supply of a certain asset by the asset’s current market value. For Bitcoin, the market capitalization at the beginning of August 2023 is above $570 billion, which is the result of the more than 19 million BTC in circulation multiplied by the Bitcoin price around $29,600.
Trading volume refers to the total number of tokens for a specific asset that has been transacted or exchanged between buyers and sellers within set trading hours, for example, 24 hours. It is used to gauge market sentiment, this metric combines all volumes on centralized exchanges and decentralized exchanges. Increasing trading volume often denotes the demand for a certain asset as more people are buying and selling the cryptocurrency.
Funding rates are a concept designed to encourage traders to take positions and ensure perpetual contract prices match spot markets. It defines a mechanism by exchanges to ensure that future prices and index prices periodic payments regularly converge. When the funding rate is positive, the price of the perpetual contract is higher than the mark price. This means traders who are bullish and have opened long positions pay traders who are in short positions. On the other hand, a negative funding rate means perpetual prices are below the mark price, and hence traders with short positions pay traders who have opened long positions.
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