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Why did the price of Ethereum (ETH) drop today?

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ether (ETHThe price fell on Dec 16 and the pre-FOMC rally to $1350 was wiped out after Fed Chair Jerome Powell issued hawkish statements following a 0.50% hike in interest rates.

The Ether sell-off was followed by a market-wide drop that triggered it Ethereum Network fees have decreased by 39.90% over the past 30 days.

Daily Ethereum network fees and daily active users. Source: TokenTerminal

The total value held in Ethereum-based smart contracts also via decentralized finance decreased by 4.49% in 24 hours.

In the wake of the FTX exchange scandal, regulators are trying to fast-track new regulations in the cryptocurrency sector.

Total USD value locked to the Ethereum network. Source: Defillama

While some Analysts believe Ethereum It still has plenty of bullish catalysts to warrant investing in the asset, and the on-chain data paints a bleak picture for the short-term price outlook.

Here are three reasons why the price of Ether is lower today.

Ethereum turns inflated as total revenue declines

The price of Ether fell as daily fees on the Ethereum network fell to $2.9 million, down from pre-FTX levels of $12.8 million on June 13. In addition to the decreasing fees, the network recorded a decrease in daily active users (DAUs) from the July 26 peak. at 961,196 users for just 367,000 DAU on December 16th.

Post-Ethereum Merger The tokens are designed to help ether deflate. However, with lower gas fees and lower DAUs, Ethereum turned around 0.073% inflation in the last 30 days and added more than 7,100 Ether. According to Ultrasonic Money, since the merger, the Ethereum network is inflated by over 1,192 Ethers.

Supply of Ethereum. Source: Ultrasonic Money

The decline in DeFi usage is in line with the price action of Ether

The locked total value metric is a popular method for examining the validity and sentiment of PoS (POS) blockchain like Ethereum. Ethereum’s TVL reached a yearly high of $83.9 billion on March 31, but since that point, it has lost nearly $60 billion. As of December 15, the network’s TVL is worth $23.46 billion.

Top 10 Ethereum Protocols market cap A headwind, as everyone saw a decrease in TVL and fees over the course of 7 days. In particular , MakerDao And the Uniswap (UNI) decreased by 5.82% and 3.49% respectively in TVL.

DeFi protocols of the Ethereum network ranked by market cap. Source: DeFiLlama

Regulatory pressure continues to weigh on investor confidence

On August 9, Congress passed the Invest in America (Infrastructure Bill) Act and was signed into law by President Joe Biden. Blockchain community members criticized the bill What they considered harmful language. The legislation is set to go into effect in January 2024.

If ether is considered a security in the US, the central exchanges (CEX) to debit alt currency for customers residing in the United States. The security rating can also take a toll alternative currenciesAnd the DApps and decentralized exchanges (DEX) is built on Ethereum. The Securities and Exchange Commission (SEC) has not yet decided whether Ether will pass the franchise Howey test.

advertisement before Commodity Futures Trading Commission (CFTC) declared Ether a commodity It also doesn’t seem to ease any investor’s concerns.

Investor expectations for 2023

In spite of A looming Shanghai hard fork that will allow users to mine Ether in March 2023Ether price is likely to remain under pressure.

While investors’ appetite for riskier assets and their interest in DeFi could continue to wane, factors such as clarity on regulators’ stance on cryptocurrencies and the eventual increase in protocols based on the Ethereum network could be a long-term catalyst for price growth.