The price of Ethereum has experienced a 7% decline in the past 48 hours, falling below the $3,000 threshold on May 8th, amidst speculation regarding the approval of an ETH ETF. However, recent spikes in the usage of the Ethereum network indicate that a significant rebound may be on the horizon.
Grayscale, the world’s largest cryptocurrency asset manager, has decided to withdraw its application for Ethereum futures ETFs ahead of the SEC’s decision. This move adds a level of uncertainty to the possibility of spot Ethereum ETFs being approved this year.
The impact of Grayscale’s withdrawal can be seen in the negative effect it has had on the price of Ethereum. As of May 8th, the price of ETH has dropped below $2,900, diverging from the upward trend seen in other altcoins.
Despite this, a closer look at the on-chain data reveals that the fundamental network usage of Ethereum has not significantly deteriorated. CryptoQuant’s chart shows an increase in the number of new smart contracts created on the Ethereum blockchain network. This surge in new contracts indicates a growing demand for ETH block space, which often leads to an increase in burn rate and subsequent price increases.
The chart demonstrates a consistent rise in new smart contracts since the beginning of May, with over 29,000 new ETH contracts created on May 7th alone, bringing the monthly total above 100,000. Historical data from October 2023 shows that when daily new contracts consistently exceeded 25,000, the price of Ethereum experienced a significant rally, gaining over 55% by the end of the year.
This historical precedent supports the bullish outlook that the price of ETH could benefit from the current spikes in new smart contracts once the concerns surrounding Grayscale’s ETH ETF withdrawal subside.
Despite struggling to maintain support above $3,000 at the time of writing on May 7th, the Ethereum price is poised for an early rebound towards $4,000, based on the creation of over 100,000 new Ethereum smart contracts in May. The global in/out of money chart from IntoTheBlock shows a large cluster of active addresses that acquired 1.41 million ETH at a minimum price of $2,903. It is likely that these investors will defend their positions, preventing a reversal below $2,900 in the near term.
Alternatively, if the surge in new contracts leads to an increase in market demand similar to what was observed in October 2023, the price of ETH could experience a parabolic breakout, reaching $4,000 as May 2024 progresses.
It is important to note that this article is for informational purposes only and should not be considered financial advice. The opinions expressed are those of the author and do not necessarily reflect the views of The Crypto Basic. Readers are advised to conduct their own research before making any investment decisions and The Crypto Basic is not liable for any financial losses incurred.
