Why has the Ethereum (ETH) price gone down today?

ether (ETH) price turned lower on December 16 and the pre-FOMC rally to $1,350 was wiped out after Federal Reserve Chairman Jerome Powell issued hawkish statements following a 0.50% interest rate hike.

Ether’s selloff follows a market-wide crash that has sent Ethereal network rates plummeted 39.90% in the last 30 days.

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

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

Following the FTX scandal, regulators are trying to speed up new regulations in the cryptocurrency sector.

Total value in USD locked in the Ethereum network. Source: DefiLlama

while some analysts believe that Ethereum still possessing multiple bullish catalysts that justify investing in the asset, the on-chain data paints a bleak picture of its near-term price prospects.

Here are three reasons why the Ether price is down today.

Ethereum turns inflationary as total revenue falls

The price of Ether fell as daily fees on the Ethereum network plunged to $2.9 million, down from pre-FTX levels of $12.8 million on June 13. In addition to declining fees, the network saw fewer daily active users (DAUs) since a July 26 peak. from 961,196 users to just 367,000 DAUs on December 16.

Post-Ethereum merger Tokenomics was designed to help Ether become deflationary. However, with lower gas fees and lowering DAUs, Ethereum has become 0.073% inflationary in the last 30 days and has added over 7,100 Ether. According to Ultra Sound Money, since the merger, the Ethereum network is inflationary by more than 1,192 Ether.

Ethereal Supply. Source: ultra sound money

A decline in DeFi usage aligns with Ether price action

The total value locked metric is a common way to examine the health and sentiment of a proof of stake (point of sale) blockchain like Ethereum. Ethereum’s TVL reached a yearly high of $83.9 billion on March 31, but has since lost nearly $60 billion. As of December 15, the TVL of the network amounts to $23.460 million.

Top 10 Ethereum Protocols By market cap they faced headwinds, and all saw a drop in TVL and rates over a 7-day period. Notably, Dao Maker Y uniswap (UNI) registered respective decreases of 5.82 % and 3.49 % in TVL.

DeFi protocols of the Ethereum network ordered by market capitalization. Source: DeFiLlama

Regulatory pressure continues to weigh on investor confidence

On August 9, the Invest in America Act (infrastructure bill) was passed by Congress and signed by President Joe Biden. Blockchain Community Members ruined the account for what they considered harmful language. The legislation will enter into force in January 2024.

If Ether is considered a security in the United States, centralized exchanges (Exc.) may be forced to remove the altcoin for US-based customers. The security classification could also negatively affect altcoins, dapps and decentralized exchanges (DEX) built on Ethereum. The Securities and Exchange Commission (SEC) has yet to decide whether Ether passes the Howey’s test.

The announcement by the Commodity Futures Trading Commission (CFTC) which declared Ether a commodity neither does it appear to be easing investor fears.

Investor expectations for 2023

In spite of the Shanghai hard fork looming, allowing users to stop participating in Ether in March 2023the ether price is likely to remain under pressure.

While investor appetite for high-risk assets and interest in DeFi could continue to wane, factors such as clarity in regulators’ stance on cryptocurrencies and the eventual rise of protocols based on the Ethereum network may prove to be a long-term catalyst for price growth. .