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The price of Ether (ETH) has declined on May 17, hitting a 7-day low of $1,788. This decrease in Ether’s value follows a commitment from Chinese prosecutors to intensify their efforts against the NFT market.
Additionally, Ether’s value faced further challenges as UK lawmakers asserted that crypto assets ought to be regulated similarly to gambling due to the inherent risks associated with investing.
In conjunction with regulatory challenges, Ether’s price has mirrored the trend of Bitcoin (BTC), which fell below the crucial $27,000 support level on May 17. Some analysts suggest this may lead Bitcoin’s price to drop to $25,000.
Here are three factors contributing to the decline in Ether’s price today.
Liquidations and low volume
The sell-off of Ether triggered a series of leveraged liquidations within Ethereum, resulting in 26,158 traders being liquidated for a total of $56 million on May 17.
Ethereum long liquidations. Source: CryptoQuant
Related: Ordinals turned Bitcoin into a worse version of Ethereum: Can we fix it?
The surge in Ether liquidations coincides with a significant drop in Ethereum’s trading volume, which has decreased from a peak of $24.8 billion on March 11 to just $1.9 billion. This substantial reduction in volume occurs as other protocols, such as the Bitcoin BRC-20 standard and Dogecoin (DOGE) DRC-20 standard, gain traction.
Ethereum volume and TVL. Source: DeFiLlama
Some analysts anticipate that Ethereum may find it challenging to maintain a position above the $1,900 mark in the near term.
Regulatory focus turns toward Ether
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The ongoing discussion regarding whether Ether should be categorized as a security token in the United States is not a new issue, but it is contributing to a decline in investor confidence. U.S. regulators appear to be moving toward prompt action concerning the cryptocurrency landscape.
While the chair of the U.S. Commodity Futures Trading Commission considers Ether to be a commodity rather than a security, the SEC has yet to provide any clarification.
In Congress, Republican members continue to voice their discontent with the Biden administration’s digital asset policies. However, if Ethereum is classified as a security in the U.S., centralized exchanges may be compelled to remove Ether from their offerings for U.S. customers. Such a classification could also adversely affect altcoins, DApps, and decentralized exchanges operating on Ethereum.
Total value locked in the Ethereum ecosystem plummets
The decline in Ether’s price coincides with a trend in centralized exchange netflow, indicating that investors are increasing their deposits into centralized exchanges. Over a 24-hour period on May 17, deposits of Ether on centralized exchanges rose by 119%.
Ethereum exchange netflow. Source: CryptoQuant
Related: Bitcoin price capitulation below $26K increases as Friday’s BTC options expiry looms
The rise in net deposits on centralized exchanges may lead to increased selling pressure, and combined with the reduced trading volume, Ether’s price could experience further declines.
Investor expectations for 2023
On May 12, the Ethereum Beacon Chain encountered difficulties in finalizing orders, resulting in transaction delays exceeding an hour. Although the finalization issue was resolved within 25 minutes, it caused significant volatility in Ether’s price.
As investors’ appetite for high-risk assets and interest in DeFi may continue to wane due to the lack of clarity regarding regulatory positions on cryptocurrencies, the emergence of new blockchains and the decrease in volume could also play a role. The eventual growth of Ethereum network-based protocols may serve as a long-term catalyst for price appreciation.
The views, thoughts, and opinions expressed here are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not constitute investment advice or recommendations. Every investment and trading decision carries risk, and readers should conduct their own research before making any decisions.
