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The Unsettling Dip in Ethereum's Value
Today, Ethereum's value appears to be on a downward trajectory as a muted trading volume is observed, and a surge of Ether finds its way into centralized exchanges.
The price of Ether dipped on May 17, sinking to a weekly low of $1,788. This sudden price slump follows an announcement from Chinese authorities expressing their intent to tighten regulations around the NFT market.
A further jolt was delivered to Ether’s price as UK legislators called for the same regulatory controls over crypto assets as those applied to gambling, considering the associated investment risks.
Also impacting Ethereum's price has been Bitcoin’s movement, which lost its vital support level of $27,000 on the same day. Several market pundits forecast this could send Bitcoin's value spiraling down to $25,000.
Let's delve into three key factors that are driving Ethereum's price downward.
The Interplay of Liquidations and Diminished Volume
The Ethereum sell-off ignited a ripple effect of leveraged liquidations, leading to the liquidation of 26,158 traders, amounting to an astonishing $56 million on May 17.
There has been a noticeable decrease in Ethereum's trading volume, dropping from its zenith of $24.8 billion on March 11 to a mere $1.9 billion. This stark decline comes as other protocols, such as Bitcoin's BRC-20 standard and Dogecoin's DRC-20 standard, begin to gather pace.
The Regulatory Microscope Swings Towards Ethereum
The ongoing debate over Ethereum's classification as a security token within the United States isn't a new discussion but is contributing to dampening investor sentiment. U.S. regulators seem to be leaning towards decisive action in regulating the cryptocurrency market.
The U.S. Commodity Futures Trading Commission chair holds the stance that Ethereum is a commodity, not a security. However, the SEC has yet to provide clear guidance on this matter.
Within the U.S. Congress, Republicans are escalating their criticism of the Biden administration's approach to digital assets. If Ethereum is designated as a security in the United States, centralized exchanges may be compelled to delist Ether for U.S. consumers. This reclassification could also have an adverse impact on altcoins, DApps, and decentralized exchanges built on Ethereum.
The Ethereum Ecosystem Witnesses a Drastic Decline in Total Value Locked
The decline in Ethereum’s price aligns with the net inflow shown by centralized exchanges, indicating investors moving funds to these platforms. Over 24 hours on May 17, the amount of Ether deposited on centralized exchanges saw a 119% surge.
An increase in net deposits on centralized exchanges often translates into a surge in sell-off pressure. Coupled with the dwindling trading volume, Ethereum's price could face further downward pressure.
Projecting into 2023: Investor Expectations
On May 12, Ethereum's Beacon Chain encountered difficulties in finalizing orders, leading to transaction delays of over an hour. This issue was resolved within 25 minutes but sparked significant volatility in Ethereum’s price.
The ongoing ambiguity surrounding regulatory stances on cryptocurrencies, the rise of new blockchains, and the reduction in volume could continue to lessen investors' appetite for high-risk assets and interest in DeFi. However, the expected growth in Ethereum network-based protocols could serve as a catalyst for long-term price increases.
