Ether (ETH) fell 12% from October 1 to 3 after failing to break above the $2,650 resistance level. This downtrend erased all gains from the previous two weeks, dampening investor optimism.

Traders are now questioning whether Ether can recover to $2,800 and what conditions are needed for ETH to reverse its current trend and outperform the broader crypto market.

Although the price of Ether has dropped by 5% since September 1, the total cryptocurrency market capitalization has increased by 1.4%.

ETH/USD (green) vs Total Cryptocurrency Market Cap (blue) | Source: TradingView

Notably, the highly anticipated Ether spot ETFs have disappointed investors, with a total outflow of $552 million since their inception, according to data from Farside Investors. However, this is not the only reason for the Ether price drop, but is a consequence of declining investment demand.

Some attribute the weakness in Ether prices to continued selling pressure from Vitalik Buterin and the Ethereum Foundation, while others point to a decline in demand for decentralized applications and cryptocurrencies in general. Regardless of the specific cause, a number of factors have kept Ether prices below $2,800.

Many Ethereum enthusiasts had high hopes based on the theory of “tultrasound money” and hoped that Ether would become a deflationary asset. However, this has not been the case over the past five months, as the coin issuance rate has returned to positive territory, largely due to changes to reduce rollup costs for layer-2. In fact, Ethereum’s strategic adjustments have negatively impacted Ether’s price.

Vitalik Buterin, co-founder of Ethereum, believes that the space allocated to specialized data storage areas (blob spaces) needs to be optimized. In a post published on September 28, he proposed reducing the maximum block size from the current 2.7 megabytes to 1 megabyte. The change is intended to facilitate more balanced usage by layer-2 networks.

In addition to Ethereum’s increasingly complex roadmap, traders have observed an Ethereum ICO participant selling around 31,000 ETH over the past month after holding on since its launch in mid-2014. According to on-chain analytics platform Lookonchain, the entity purchased 150,000 ETH during the initial coin offering.

Similarly, Vitalik Buterin transferred approximately $10 million worth of Ether to wallets linked to cryptocurrency exchanges in August, allegedly to support projects within the Ethereum ecosystem. Meanwhile, the Ethereum Foundation transferred over $207 million to cryptocurrency exchanges, allegedly to support and expand the Ethereum ecosystem.

Ethereum Network Activity Does Not Indicate Further Decline for ETH

However, based on Ethereum network data, investors have no reason to believe that the price of Ether will continue to underperform the broader market. Ether's core function stems from its decentralized processing capabilities, as demonstrated by strong metrics such as the total value locked in the network's smart contracts and the total volume of decentralized applications (DApps).

Top blockchains ranked by 7-day trading volume, USD | Source: DappRadar

Notably, Ethereum remains the market leader with a trading volume of $26.2 billion. More importantly, the number of active addresses increased by 27% and the trading volume increased by 41% over the past seven days. In comparison, BNB Chain (BNB) saw a 15% decrease in users compared to the previous week, while the TON network recorded a 35% decrease in active addresses.

Highlights on the Ethereum network included Uniswap’s trading volume increasing by 33% and Balancer’s volume increasing by 122%, reaching $5.4 billion in seven days. Additionally, Curve processed a 143% increase in volume, indicating significant growth in user interactions and trading activity. In terms of active addresses, EigenLayer stood out with a 114% growth in a week, while Etherfi’s figure nearly quadrupled.

Ultimately, the path for Ether to reclaim $2,800 seems to depend less on the performance of decentralized applications, which remain strong, and more on balancing scalability with incentives for investors to hold ETH. This includes the expectation of returns from staking or increased demand for layer-2 processing fees.”