Ethereum is up about 35% so far in 2023. However, attempts to break above $2,000, a psychological resistance level, failed. Accordingly, it has witnessed strong bearish rejection many times. Let’s take a closer look at three possible reasons why the ETH price has failed to decisively reclaim $2k since May 2022.
Ethereum price draws bear cycle fractal
Ethereum ETH’s failure to rise above $2,000 in 2023 is similar to the decline around $425 in 2018-2019.
In both cases, Ethereum is closing above the 0.236 Fib line of the Fibonacci retracement chart. Accordingly, it appears to be in a recovery phase. In 2018-2019, the 0.236 Fib line was near $425. It was also effective in limiting ETH’s recovery attempts. In 2023, the same line approaches $2,000. It also re-establishes itself as a sales area. Thus, reducing the price of ETH.
Stronger US dollar
The strengthening US dollar has reduced demand for Ethereum in recent months. Thus, it reduced its ability to close decisively above $2,000. The prevailing negative correlation between top cryptocurrencies and the dollar is the main culprit. Particularly in 2023, the weekly correlation coefficient between Ethereum and the US dollar index (DXY) has been consistently negative, as shown below.
Meanwhile, Ethereum has largely underperformed Bitcoin in 2023 due to the ongoing spot Bitcoin ETF frenzy. For example, the widely followed ETH/BTC exchange rate is down 20% year-to-date.
According to CoinShares’ weekly report, the net capital held by investment funds tied to Ethereum ETH decreased. Accordingly, it has decreased by 114 million dollars so far in 2023. In comparison, Bitcoin-based funds attracted $168 million during the same period.
Ethereum network activity is declining
Total value locked (TVL) across the Ethereum ecosystem has decreased from 18.41 million ETH to 12.79 million ETH so far in 2023. This underscores the declining availability of funds, as JP Morgan analysts recently warned. On the other hand, it results in lower returns for investors.
TVL accompanied the decline in the Ethereum network’s gas fees, which reached a yearly low on October 5. According to Dapp Radar, Ethereum’s NFT volumes, unique active wallets fell 30% and 16.5% in 30 days. This includes declines in key metrics of popular apps, including decentralized exchange Uniswap V2, DEX aggregator 1inch Network, ETH staking provider Lido, and others.
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