The price of Ether (ETH) fell on December 16 and the pre-FOMC rally to $1,350 was erased after Federal Reserve chairman Jerome Powell issued a hawkish statement following a 0.50% interest rate hike.
The price of ether took a hit when Silvergate Capital Corporation decided to liquidate Silvergate Bank voluntarily. Silvergate Bank was one of the leading crypto-friendly banks before a wave of companies dropped their services due to liquidity issues.
The sale of Ether also led to a long liquidation wave of Ethereum, totaling $70 million from March 1-8.
The long Ether liquidation rush comes as the volume of Ethereum, which can offset the liquidation, has dropped by 90% since March 2020.
While some analysts believe that Ethereum still has multiple bullish catalysts that warrant investment in the asset, on-chain data paints a bleak picture of short-term price prospects.
Here are three reasons why the price of Ether is down today.
The total value locked in the Ethereum ecosystem decreased in March
The total value locked metric is a common way to check the health and sentiment of proof-of-stake (PoS) blockchains like Ethereum. The price of ether fell as TVL in the Ethereum ecosystem fell from its monthly high on March 2 from $29.7 billion to $28.1 billion per month. The monthly low was followed by a 1.75% 24-hour decline in TVL on March 9.
The drop in Ether price comes as centralized exchange netflow shows investors are sending more funds to CEX than withdrawing to decentralized exchanges. On March 7, 21.7 million more Ether were sent to centralized exchanges than withdrawn. Usually, investors tend to move their funds to CEX to sell into deep liquidity.
Rising inflation fueled fears of higher rate hikes
On March 7, Federal Reserve Chairman Powell addressed the US Senate Committee on Banking, Housing and Urban Affairs in his Semiannual Monetary Policy Report to Congress.
In prepared remarks, Powell envisioned higher interest rate hikes to control inflation,
“The latest economic data has been stronger than expected, which indicates that the highest interest rate will be higher than previously anticipated. If the totality of the data shows that faster tightening is provided, we will be ready to increase the pace of rate increases. Restoring price stability will requires us to maintain a restrictive stance on monetary policy for some time.Our main focus is on using tools to bring inflation back to the 2 percent target and to keep long-term inflation expectations intact.
Powell’s comments are troubling the stock market, which is closely related to the price of Ether. After anticipating only a 0.25% rate hike on March 1, according to CME’s FedWatch tool, the market now expects a 0.5% base rate hike.
Daily active users of Ethereum declined before the Shanghai upgrade
Despite briefly overtaking Bitcoin (BTC) for more active users on January 8, the Ethereum network continues to see less activity than BTC. In addition to Bitcoin maintaining more active users than Ethereum, Ethereum-based NFT company Yuga Labs launched a BTC block-based NFT auction on March 7 that raised $16.4 million.
Investor expectations for 2023
The first, the Shanghai hard fork, is scheduled for March 14th. On March 2, Ethereum developers announced the postponement of the hard fork until April. Although on-chain data suggests the Shanghai hard fork will not bring massive selling pressure, the price of Ether will remain volatile.
While investor appetite for high-risk assets and interest in DeFi may continue to decrease with higher interest rates in the US, factors such as clarity on the regulatory stance on cryptocurrencies and the improvement of the Ethereum network-based protocol may. proving to be a long-term catalyst for price growth.
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