3 indicators suggest Ethereum's downtrend is not over yet

Ethereum rallied to $3,972 following approval of a spot Ethereum exchange-traded fund (ETF), but has underperformed compared to Bitcoin and the broader cryptocurrency market over the past week, falling 10%, leading traders to wonder if the altcoin’s downtrend is over.

Specifically, the price of Bitcoin has fallen 6% during the same period, while the total cryptocurrency market capitalization has fallen 5.3%.

Many market and technical indicators suggest that ETH could experience a deeper correction before another attempt at recovery.

ETH//USD daily chart. Source: TradingView

The ETH/BTC ratio has been trending down over the past week

Ethereum is down 10% over the past seven days, underperforming Bitcoin and other top Layer 1 tokens. BTC prices are down 5.5% over the past week, and the ETH/BTC ratio has fallen 5.21% from 0.055 on June 3 to 0.0513 on June 11, the lowest level since May 20.

ETH/BTC ratio. Source: TradingView

There are many reasons for ETH’s underperformance at this time, including factors that are unique to Bitcoin in 2024. US spot Bitcoin ETFs have been largely successful, with nearly $2 billion in capital inflows last week. In addition, the upcoming CPI data and the FOMC meeting’s decision on rate cuts have triggered a significant market correction in the past few months, affecting all cryptocurrency prices, including Ethereum.

Furthermore, Ethereum’s network activity (specific metrics) has declined over the past 90 days. Data from Glassnode shows that daily active addresses on the Ethereum network fell from 622,963 on March 20 to 458,400 on June 10. That’s a 1.2% drop in the past 48 hours alone.

The number of active addresses on Ethereum. Source: Glassnode

While Ethereum remains the most powerful network in the Layer 1 space, Solana has recently taken market share in this space in terms of on-chain activity. According to DappRaddar, the number of NFTs on Ethereum has fallen by 9% in the past 7 days to 105 million.

The chart below shows that the Ethereum network lags behind Solana and BNB Chain in terms of total UAWs. Over 524,000 UAWs have interacted with the protocol, down 4.5% over the past 7 days. This is far lower than the 2.7 million UAWs on Solana, which has grown 74% over the same time frame.

Top Layer 1 blockchains. Source: DappRadar

The decrease in on-chain activity indicates weakening demand for Ethereum within the ecosystem, thereby depressing its price.

Ethereum faces strong resistance on the upside

Ethereum’s recent decline has caused it to lose a key support level near the $3,500 demand zone, turning it into a resistance level. Past price action has shown that this area has acted as a stubborn resistance for ETH bulls. Ethereum fell below this level on April 11, causing it to fall by 25% to a low of $2,814 hit on May 2.

Data from IntoTheBlock reinforces the importance of this resistance zone . Its Inside-Outside-Price (IOMAP) model shows that this area is located in the price range of $3,476 to $3,577 , after about 2.6 million addresses purchased about 1.08 million ETH.

Ethereum IOMAP chart. Source: IntoTheBlock

If there is heavy seller activity at this resistance level in the short term, the price of Ethereum can be expected to fall further.

Ethereum’s market pattern points to continued downtrend

After reaching a six-week high of $3,973 on May 27, ETH prices retreated as short sellers took profits and the overall cryptocurrency market corrected. Since then, prices have fallen 12% to the current price of $3,511.

Despite the recovery, a long bearish candle is still visible on the daily chart, suggesting the strength of the downtrend.

ETH//USD daily chart. Source: TradingView

Ethereum bulls are counting on the psychological $3,400 level for immediate support. A daily close below this level will indicate that the bulls are unable to defend it and a drop to $2,840 is expected. Such a move would imply an 18% drop from the current levels.