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Ethereum on-chain data suggests another downside to ETH price

Analysis of Ether (ETH)’s current price chart paints a bearish picture, largely justified by its 11% drop over the past month, but other traditional financial assets have faced more extreme price corrections over the same period. Invesco China Technology ETF (CQQ) is down 31% and Russell 2000 is down 8%.

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Ether price on FTX, in USD. Source: TradingView

Currently, traders are worried that the loss of descending channel support at $2,850 could lead to a stronger price decline, but this largely depends on how derivatives traders are positioned along with the Ethereum network’s on-chain metrics.

According to Defi Llama, the Ethereum network’s Total Value Locked (TVL) has flattened out to 27 million Ether over the past 30 days. TVL measures the number of coins deposited on smart contracts, including decentralized finance (DeFi), non-fungible token (NFT) marketplaces, games and high-risk applications.

The Ethereum network’s average transaction fee rose to $13 after bottoming out at $11.50 on April 20, but one should analyze whether this is due to lower usage of decentralized applications (DApps). or whether they are just users benefiting from Layer 2 scaling solutions.

Ether’s futures premium is trending bearish

Traders use ether futures market data to understand how professional traders are positioned, but unlike the standard perpetual futures, the quarterly contracts are the preferred instruments of whales and market makers as they can avoid the fluctuating funding rate.

The basic indicator measures the difference between longer-dated futures contracts and current spot market levels. In neutral markets, the annualized premium for ether futures should range between 5% and 12% to compensate traders for “holding” the money until the contract expires.

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Ether 3 month futures annualized premium. Source: Laevitas.ch

The current base of 2% Ether futures clearly shows the lack of demand for leverage buyers. While not exactly backwardation (negative premium), an annualized futures premium of less than 5% is typically considered bearish.

This data tells us that professional traders have been neutral to bearish over the past few months, but to rule out externalities that may have affected derivatives data, one should analyze the Ethereum network’s on-chain data. For example, monitoring network usage tells us if actual use cases are supporting demand for ether.

On-chain metrics are sluggish

Measuring the number of active addresses on the network provides a quick and reliable indicator of effective usage. Of course, this metric could be misled by the increasing adoption of Layer 2 solutions, but it works as a starting point.

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7-day average of active addresses on Ethereum. Source: CoinMetrics

The current average of 584,477 daily active addresses is down 4% from 30 days ago and nowhere near the 675,117 in November 2021. So the data shows that Ether token transactions are showing no signs of growth, at least at the primary level .

Traders should rely on the DApp usage indicators but not solely focus on the TVL as this metric is heavily focused on DeFi applications. Measuring the number of active addresses provides a broader view.

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30-day DApps activity of the Ethereum network. Source: DappRadar

Ethereum DApps active addresses have flattened out in the last 30 days. Overall, the data is a bit disappointing considering that competing chains like Solana (SOL) saw a 34% increase in active addresses.

If there is no decent growth in Ether transactions and DApp usage, the $2,850 descending support channel resistance might not hold and trigger a deeper short-term price correction.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.