Ethereum approaches key support level, long-short game continues

Crypto markets extended their downward trend from last week as bearish sentiment among traders and a lack of new catalysts saw Ethereum, the second-largest cryptocurrency by market cap, fall below $1,655.

Ethereum was still down 1.1% late Sunday, as trading aggregator protocol 1Inch bought 6,088 ETH, adding some buying pressure to an otherwise tepid market. Crypto investor and podcast host Keyboard Monkey -KBM recently suggested in his tweet that Bitcoin could fall to around $21,000 and ETH could fall to $1,400.

Strong resistance near $1,660

Crypto chart analyst Aayush Jindal said in his tweet that like Bitcoin, ETH price seems to be struggling to rise above the $1,660 and $1,670 levels. Currently, it is showing bearish signs below $1,670 but holding the 50% Fibonacci retracement level of the key increase from the $1,580 swing low to $1,698.

Moreover, there is a key bearish trend line forming with resistance near $1,660 on the hourly chart of ETH/USD. If the price stays above the $1,640 support, the bulls are likely to attempt a fresh increase.

Analysts believe that on the upside, the price might face resistance near the $1,660 level and the trendline area. The next resistance is near the $1,670 level. A close above $1,670 might push the price towards the important area of ​​$1,700. Within this range, the main resistance is near the $1,720 level, and if it is crossed, the price might move up to $1,780. Any further gains might push the price towards $1,850.

Conversely, if Ethereum fails to clear the $1,670 resistance, it might continue to fall. An initial support on the downside is near the $1,640 level. The first major support is near the $1,620 area, which is the 61.8% Fibonacci retracement level of the key increase from the $1,580 swing low to $1,698.

The next key support is near $1,580. If there is a downside break below $1,580, the price could accelerate towards the $1,500 level. Any more losses could lead the price down to the $1,440 level in the near term.

The Ethereum ecosystem continues to develop

The total daily fees paid by users to execute transactions on Ethereum fell to 1,719 ETH ($2.8 million) this past Sunday, the lowest single-day total since Dec. 26, according to data tracked by blockchain analytics firm CryptoQuant . The amount is down 89% from the year-to-date high of 16,720 ETH observed on May 5. Ethereum uses a proof-of-stake consensus mechanism, which involves validators rather than miners to create and verify transaction blocks. As a result, validators (entities that help secure the network by staking at least 32 ETH) receive transaction fees, but not the full amount. They receive a priority fee, or a tip that users add to the base fee to entice validators to prioritize their transactions. At the same time, the base fee is destroyed and the ETH is no longer in circulation.

A drop in total payment fees represents lower network usage, as fees depend on the network's activity level, primarily the number of pending transactions.

That said, the eight-month low in fees could stem from the growing popularity of Ethereum’s Layer 2 scaling solutions, which is a long-term positive development for Ethereum.

David Lawant, head of research at FalconX , said in a report last week. Since the launch of friends.tech on August 10, Ethereum L1 fees have been 25% below the average level for the year, which is in stark contrast to the success of early NFT applications such as CryptoKitties or the latest Yuga Labs NFT releases, which often temporarily clogged the Ethereum network."

Lavant also believes: "From a broader perspective, it is encouraging to see such a successful application gain meaningful traction without congesting the underlying blockchain network. Of course, this is based on the development of Ethereum's L2 scalability solution: Friends.tech is built on Base , Coinbase 's L2 chain using the Optimism stack."

Friend.tech launched on August 1 and gained over 100,000 users in two weeks and amassed over $25 million in revenue. Layer 2 scaling solutions such as Optimism, Arbitrum , and Base help scale Ethereum, ease congestion, and control transaction costs on the main network.

According to data tracked by analytics firm IntoTheBlock , the number of daily transactions on the Optimism mainnet hit a record high of nearly 900,000 transactions on August 15. In addition, the number of transactions processed between the Ethereum mainnet and the main Layer 2 using Optimistic Rollup technology hit the second highest value in history earlier this month.

“As competition among L2s intensifies, Ethereum will clearly benefit,” IntoTheBlock said in its weekly newsletter.

Ethereum will also continue to dominate the market in terms of total locked value, and with the Holesky testnet and EIP-4844 upgrade approaching in the coming weeks, it may stimulate a rally in ETH tokens.