Ethereum, the second-largest crypto by market capitalization, is facing a tumultuous journey in 2023. Despite showing promise with an ascending triangle pattern, which typically suggests a bullish trend, the digital asset is struggling to break through the critical $2,000 threshold. The failure to breach this resistance raises concerns of a potential downturn that could see ETH’s price plummet below $1,000.
Throughout 2023, Ethereum has been characterized by a pattern of increasingly higher lows, forming the basis of an ascending triangle. This chart pattern, often seen as a precursor to bullish momentum, has failed to provide the anticipated lift. If the pattern breaks down, ETH’s price could experience a sharp drop, targeting levels as low as $700 per ETH.
Ethereum’s troubles in 2023 contrast with its performance during the bear market of 2022. While other cryptocurrencies struggled, Ethereum managed an early recovery. However, it is now at risk of falling to new lows if the ascending triangle pattern fails to materialize.
Despite some positive developments, including the launch of Ethereum Futures ETFs, the cryptocurrency’s price has failed to gain substantial traction. This underperformance threatens to negate the potential benefits of the bullish pattern and could lead to further price declines.
Gas Fees And Network Congestion On Ethereum
One major concern for Ethereum has been the high transaction costs, commonly referred to as gas fees, and network congestion during the previous bull market. However, the decline in demand for non-fungible tokens (NFTs) and decentralized finance (DeFi) activities has significantly eased network congestion and brought down transaction fees.
The adoption of layer 2 solutions, designed to enhance ETH’s scalability, has further reduced transaction costs. While this is a positive development for users who can execute transactions more affordably, it has an unintended consequence of maintaining ETH’s inflationary status by burning fewer tokens than new issuances.
Lucas Outumuro, Head of Research at IntoTheBlock, commented on the situation, stating, “The decrease in fees is putting ETH’s ‘ultrasound money’ thesis to a test.” Over the past month, Ethereum’s token supply has grown by 33,500 ETH, worth around $52 million, due to reduced activity on the blockchain.
The decline in speculative activity and the migration of users to layer 2 solutions have further suppressed network fee revenues. For instance, NFT trading, responsible for a significant portion of tokens burned in 2021 and early 2022, now represents only 8% of the total. These dynamics are contributing to Ethereum’s uncertain outlook in 2023.
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