Three key factors leading to Ethereum’s declining value as ETH remains below $3,000

Ethereum (ETH) is currently trading at $2,648, facing challenges in surpassing the critical resistance level of $3,000 as institutional capital moves out of Spot Ethereum ETFs. This trend has persisted over eight consecutive days, indicating a decline in institutional interest in the cryptocurrency.

The revenue generated by Ether has been impacted by Layer 2 chains that enhance the scalability of the Ethereum network. This, in turn, has had a negative effect on the amount of Ether collected. The circulating supply of Ether has turned inflationary, suggesting an increase in the available supply, which can potentially exert downward pressure on its price. At the time of writing, ETH is struggling to breach the $3,000 resistance level, trading at $2,648.

Unlike Bitcoin, the approval of Ether ETFs has not led to a significant upsurge in the value of the underlying asset, sparking concerns among Ether holders. The failure to capitalize on the approval has raised questions about the future trajectory of Ether’s price.

Three key factors contributing to the decline in Ether’s price include the consistent outflows from Ethereum Spot ETFs, the impact of Layer 2 chains on fee revenue, and the rise in Ether supply. Data from Bloomberg reveals that Spot Ether ETFs have experienced a loss of $112 million in institutional capital since their launch in July. The initial excitement surrounding Ethereum’s deflationary potential has diminished, further dampening demand for Ether and influencing its price negatively.

The implementation of EIP-4844, also known as proto-danksharding, on the Ethereum network has reduced transaction fees for Layer 2 chains, enhancing their utility. However, this has also contributed to Ether’s inflationary supply dynamics. With lower transaction costs, a smaller volume of ETH is collected as fees and burnt, resulting in a higher circulating supply of the asset. This increased supply can lead to heightened selling pressure, hindering price appreciation.

Looking ahead, Ethereum faces the possibility of slipping to $2,500 before a potential recovery. The altcoin is currently below the crucial $3,000 level and may experience a further 3% decline, with a key support level at $2,536. Sustaining above $2,500 is essential for Ether’s price stability. A breach of the $2,820 resistance level could pave the way for a rally towards $3,000 and potentially extend gains to $3,102, marking a significant Fibonacci retracement level.

In conclusion, Ethereum’s price dynamics are currently influenced by institutional outflows, the impact of Layer 2 chains on revenue, and the inflationary supply of Ether. Overcoming these challenges will be crucial for Ether to regain momentum and potentially reach higher price levels in the future.