What Happened to Ethereum? Low Fees, Whale Sell-Offs, and 7% User Stickiness

Ethereum Gas Fees Witness Record Dip, Signals Decreased DeFi, NFT Activity

On October 8, 2023, the average Ethereum gas fee took a startling dip, decreasing to 8.8 Gwei, as per Etherscan data. The falling levels of gas fees, the lowest since October 2 the previous year, signals a decline in blockchain activity. According to cryptocurrency charts data, the decline is chiefly credited to a drop in activity on DeFi applications, NFTs, layer-2 networks, and Telegram bots.

NFT trading volumes have taken a severe downturn, plummeting to two-year lows, as per data available on Hildobby's Dune dashboard. Simultaneously, trading bots on Telegram saw rapidly diminishing activity levels at the start of October, which also contributed to the reduced gas fee structure.

Offloading Across Exchanges and Networks 

Another figure that demands attention is the reduced gas consumption by some of the heavyweight entities on Ethereum's blockchain. The list includes well-known names like Uniswap, 1inch, and MetaMask. Their gas consumption levels went down by a notch last week, inadvertently contributing to the overall gas fee scenario.

Joining this list of contributors were well-identified exchanges such as Binance and Coinbase, as well as layer-2 networks, including Arbitrum and Optimism. They collectively spent a whopping 30% less on gas compared to the metrics of the previous week. 

This decline in gas expenditure on these low-fee layer-2 networks marks the first downward turn since last year. Data analysts like Funnyking, through their Dune dashboard, have objectively captured these downturn figures.

Escalating Ethereum Supply 

Simultaneously, Ethereum's supply is on the uptrend. It's currently growing at a brisk rate of 1,460 ETH daily, resulting in an annual inflation rate of 0.44%. The crypto price projection, therefore, points towards an inflating gas fee trend in the short-term unless a major overhaul changes the game. This supply growth is also putting pressure on Ethereum's 'ultrasound money' meme.

The concept of Ethereum being burned is currently facing a downward trajectory, hitting its lowest point for the entire year on the first Monday of October, with only 7,084 ETH being burned.

User Retention Poses a Challenge for Ethereum

Exploring another aspect of Ethereum's current scenario, only an alarmingly low 7% of users who initially interacted with Ethereum continued to toy around the platform after a year, as per released Token Terminal data from October 9, 2023. 

This clearly flags a staggering 93% of users stepping off Ethereum's platform within a year, possibly due to the platform's perceived complexity or lack of interest in its crypto coin prices.

The retention rate graph, tracking Ethereum users from August 2015 through October 2023, has been gradually waning over the years. As Ethereum continues to struggle with several challenges like scalability, high transaction fees, and growing competition from other platforms, the user retention rate is unlikely to see any drastic upturns.

The Ethereum blockchain's scalability stands limited, with the maximum capacity seemingly pegged at processing only 15 transactions per second during peak times. 

Among other identified reasons, Ethereum's high transaction fees are an obvious deterrent due to the high demand for block space, thereby driving potential users towards more scalable networks like Solana or TRON.

Ethereum's Sell-Off Saga 

In another series of incidents from the last year, Ethereum whales (crypto enthusiasts with significant coin holdings) have sold around 12 million ETH. 

Analyst James V. Straten observed the Ethereum and Bitcoin whale behavior and found a steep selling trend among the Ethereum whale community. In contrast, Bitcoin whales have been accumulating their holdings over time, with temporary deviations during the 2021 bull run.

Around 20 million ETH were sold since 2020, forming a stark contrast with Bitcoin whales, who have escalated their holdings in the same period. The gap in whale holdings between Bitcoin and Ethereum is glaring - Bitcoin whales are holding much higher value compared to their ETH whale counterparts.

The value of whale holdings varies considerably between the two assets. Bitcoin whales hold considerably more value compared to their Ethereum counterparts. The sell-off pattern among Ethereum's biggest holders, often referred to as mega whales (those holding $158 million+), has been particularly noticeable. 

While smaller Ethereum whales holding between 10,000 and 100,000 ETH have shown signs of accumulation over the years, their larger counterparts have been heavily distributing their holdings since 2020.

This trend suggests an almost constant downtrend in Ethereum's whale holdings, providing an interesting perspective for those watching the future of the asset. In contrast, Bitcoin whales have been participating in net buying this year.

Ethereum's recent price drop has subjected the coin to further pressure, with it retesting previous lows. Considering the economic factors at play, analysts are carefully observing these pointers in the landscape of Ethereum market cap.

Ether's Underperformance Against Bitcoin Likely to Persist

According to K33 Research, Ether is likely to continue underperforming against Bitcoin. This prediction arises primarily from the higher premiums on Bitcoin futures and the potential for spot Bitcoin ETF approvals. 

The research suggests that traders, when faced with a risk-off environment, seem to prefer Bitcoin over Ether. The prospect of spot Bitcoin ETF approvals appear more enticing than DeFi and NFT-associated Ether.

Simultaneously, the Securities and Exchange Commission (SEC) is unlikely to challenge the Grayscale court decision. If this stands, it could trigger a market reaction, leading to a re-evaluation of Grayscale's application for a spot Bitcoin ETF.

Ether, along with other altcoins, has underperformed in the spot market. Ether's underperformance against Bitcoin has reached a 14-month low. 

However, the derivatives market displays some positive sentiment with higher CME premiums and offshore funding rates for Bitcoin, indicating a demand for call options. Yet, the market reflects caution with low offshore funding rates and Bitcoin futures ETF outflows.

Navigating these calm market conditions and the lack of substantial directional momentum is posing difficulties for traders and investors.

Ethereum's Bold Future Predictions by Standard Chartered

Amid these cautious indicators, Standard Chartered remains optimistic about Ethereum's outlook. It predicts that the price of Ethereum could potentially reach $8,000 by the end of 2026. That's a five-fold increase from the present price of about $1,600.

Geoffrey Kendrick, Head of Crypto Research at Standard Chartered, elucidates that Ethereum's dominance in smart contract platforms and emerging uses in gaming and tokenization could drive its price to this predicted level.

The report also mentions the growth of Ethereum's layer 2 scaling solutions as a catalyst for a potential price rise. Kendrick acknowledges upcoming upgrades like proto-danksharding, which could lower transaction fees and consolidate Ethereum's position in the smart contract market.

The predicted target of $8,000 is seen as an initial milestone towards the bank's extended valuation range for Ethereum, predicted to be between $26,000 and $35,000. This outlook is based on future use cases and revenue streams that have yet to materialize, besides expecting real-world adoption in areas like gaming and tokenization to contribute to Ethereum's momentum.

Earlier this year, Kendrick set an ambitious price target of $120,000 for Bitcoin by the end of 2024. Notably, Bitcoin is currently being traded at approximately $27,000. As the numbers play out, the market observations by industry specialists and their potential impact undeniably stand essential for traders, investors, and crypto enthusiasts altogether.

Remarkable Decrease in Ethereum Validator Queue Time Since Shapella Upgrade

Following the major "Shapella" upgrade in April 2023, the Ethereum network's new validators' waiting queue time has experienced a significant drop. At its peak in June, the waiting time stood at a daunting 45 days. Now, prospective validators can accomplish deployment within an astounding five hours. 

Blockchain data demonstrates a considerable decrease in the number of validators queued for network inclusion, from over 96,000 at its peak to now just 598. This reduction has culminated in a shrinkage of the expected waiting timeframe to add a new validator to an impressive sub-five hours.

Validators, with their vital role in upholding Ethereum's proof-of-stake blockchain and verifying transactions, do so by staking ETH and, in return, receiving staking rewards. 

Post Shapella Upgrade Responses and Results

The Shapella upgrade significantly allowed for the withdrawal of staked ETH for the initial time, translating into a consequential surge in staking demand. However, as time passed, the initial fervor began displaying signs of abatement, implying a slowdown in the growth of staked ETH.

Ethereum's staking rewards have faced a decline, currently hovering around 3.5%. Previously, rewards were 5%-6%, a difference attributed to low network activity and an ascending number of stakers.

The token staking ratio on Ethereum, denoting the share of tokens staked in the network, has ascended to over 22%. Despite this growth, Ethereum lags behind other proof-of-stake networks like the Solana, Cardano, and Avalanche networks in this regard. 

Contributing to this disparity is ETH's use as a network resource and Ethereum's more distributed shareholder base. Nonetheless, the remarkable decline in waiting time for Ethereum’s validator queue signals notable improvements since the Shapella upgrade.

FAQs

1. What caused the decline in Ethereum's gas fee?

The decline in Ethereum's gas fee correlates with reduced activity in DeFi applications, NFT transactions, Layer-2 networks, and Telegram trading bots in early October.

2. What's the user retention rate of Ethereum's platform?

Only 7% of Ethereum users continue their interaction with the platform a year after their first experience. Approximately 93% of users reportedly abandon the platform within a year.

3. Are Ethereum's whale holdings dwindling?

Yes, Ethereum's whale holdings are witnessing a significant downtrend. The Ethereum whale community has offloaded around 12 million ETH in the past year.

4. What's the future of Ethereum, according to analysts?

Analysts predict varying futures for Ethereum. While K33 Research believes that Ethereum might underperform against Bitcoin, Standard Chartered expects Ethereum's price to hit $8,000 by the end of 2026.

5. How is Ethereum's supply trending?

Ethereum's supply is on an uptrend, growing at a daily rate of 1,460 ETH, thereby causing an annual inflation rate of 0.44%.

This article has been refined and enhanced by ChatGPT.