DAPP

Weak derivatives metrics, and declining TVL and DApps use, put Ethereum bears in a better position to keep ETH price below $2,000.

The price of Ether (ETH) faced strong resistance at $1,920 after a 17.5% rally between June 15 and June 22. Several factors contributed to the limited upside, including worsening macroeconomic conditions, the regulatory cryptocurrency environment and weaker demand for decentralized applications (DApps) on the Ethereum network.

ETH price faces macroeconomic headwinds

On June 26, a federal judge denied a motion from Binance that could have stopped the United States Securities and Exchange Commission (SEC) from issuing public statements related to the case.

In addition, in its mid-year outlook, HSBC Asset Management’s report warned of an economic downturn in the U.S. in the fourth quarter, followed by a “year of contraction and a European recession in 2024”. The report also noted that “corporate defaults have started to creep up.”

Finally, International Monetary Fund chief economist Gita Gopinath told CNBC on June 27 that central bankers should “continue tightening” by keeping interest rates high for longer than expected.

Ethereum network demand, gas fees drop

Usage of DApps on the Ethereum network failed to gain momentum as gas fees dropped 60%. Notably, the seven-day average transaction cost dropped to $3.7 on June 26, down from $9 four weeks prior.

DApp active addresses also declined by 27% in the same period.

A large chunk of the decline was concentrated on Uniswap and MetaMask Swap, while most nonfungible token (NFT) marketplaces saw a surge in their unique active wallets (UAW).

Despite UNiswap NFT Aggregator's lackluster performance, the sector faced a decent influx of users on OpenSea, Blur, Manifold, LooksRare and Unick.

More concerningly, however, is that the total value locked (TVL), measuring the deposits locked in Ethereum's smart contracts, reached its lowest level since August 2020. The indicator declined by 6.9% between April 28 and June 28 to 13.9 million ETH, according to DefiLlama.

ETH price rally not supported by derivatives markets

So how are professional traders positioned for the next ETH price move? Let's take a lot at Ether futures to gauge the odds of ETH/USD breaking above the $1,920 resistance. 

ETH quarterly futures are the preferred instruments of whales and arbitrage desks. However, these fixed-month contracts usually trade at a slight premium to spot markets as they demand an additional fee to postpone settlement.

As a result, in healthy markets, ETH futures contracts should trade at a 5 to 10% annualized premium, a situation known as contango.

According to the futures premium, known as the basis indicator, professional traders have been avoiding leveraged longs (bullish bets). Despite the modest improvement to 3%, the metric remains far from the neutral 5% threshold.

To exclude externalities that might have solely impacted the Ether futures, one should analyze the ETH options markets. The 25% delta skew indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put option premium is higher than the call options.

The skew indicator will move above 8% if traders fear an Ether price crash. On the other hand, generalized excitement reflects a negative 8% skew.

As displayed above, the delta skew has been flirting with moderate optimism since June 22 but has been unable to sustain it for long. Presently, the negative 2% metric displays a balanced demand for options.

Resistance below $2,000 remains formidable

Judging by the ETH derivatives metrics, declining TVL and Dapps use, bears are in a better position to defend the $1,920 resistance. Moreover, the worsening macroeconomic conditions and the cryptocurrency regulatory news flow confirm the moderate pessimism for risk-on assets, including Ether.

Related: 3 reasons why Ethereum’s market cap dominance is on the rise

That does not necessarily mean that Ether is bound to retest $1,750, but it certainly presents an enormous hurdle for ETH bulls after failing to break the $1,920 level on three occasions between June 21 and June 25.

Consequently, at least for the short term, Ethereum bears have better odds of successfully defending this important price level.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.