Ethereum traders are grappling with a recent 12.5% decline in the cryptocurrency’s value over the past three weeks. The downturn coincides with market sentiment shifting, as interest rate reductions by the US Federal Reserve seem less likely before March. Concurrently, Ethereum futures premiums have dipped to a three-month low, raising questions among traders regarding additional factors affecting Ethereum’s price.
Ethereum Network’s High Gas Fees Challenge User Experience
Persistent high gas fees on Ethereum’s network are prompting criticism from users and investors. This issue is intensifying the competition with other blockchain networks prioritizing scalability, such as BNB Chain, Solana, and Avalanche. Despite variances in decentralization levels, Layer-1 solutions on these networks often offer a more appealing user experience. Therefore, Ethereum’s scalability solutions and their costs are a significant concern for its community.
Ethereum core developer Tim Beiko recently announced the successful completion of tests for the network’s upcoming Denoun hard fork. This upgrade will incorporate proto-danksharding to alleviate rollup scalability solution costs. While the Ethereum Foundation has yet to confirm a release date, analysts expect the upgrade to go live on the main network by March.
DefiLlama, a blockchain analytics platform, underlines the growing importance of Layer-2 solutions. Currently, the cumulative value locked in the top four Layer-2 networks surpasses that within the BNB Chain’s smart contract deposits. Additionally, Ethereum rollups have been outpacing the main network’s transaction processing rate by more than four-fold, as reported by L2Beat.
Market Sentiments Reflect in Ethereum Futures Premiums
There’s a preference among professional investors for monthly futures contracts, which typically trade at a 5% to 10% premium in neutral markets, factoring in longer settlement periods. However, Ethereum futures premiums have seen a declining trend since early January, despite peaking at 10% until late January. This decline is despite Ethereum’s price surge on January 12th, attributed to the anticipated launch of a spot Bitcoin ETF.
The current 7% premium in ETH futures reflects market price expectations. Historical comparisons show that a similar premium level occurred in November 2023 when Ethereum’s price was significantly lower. Despite the subdued sentiment in the futures market, Ethereum’s price managed a 21.5% increase within a month after that period, an indication that current futures market sentiment might not necessarily predict a downtrend in price.