For more than a year, Ethereum [ETH] has been performing below expectations compared to other cryptocurrencies. However, recent data from on-chain sources could indicate a potential change in direction. While ETH has seen a decline of 1.1% over the past year, Bitcoin [BTC] and Solana [SOL] have recorded significant increases.
At present, two notable developments – a drastic reduction in transaction fees and a rise in accumulation – might be indications of growing investor trust.
Is this a possible indication of the beginning of a resurgence for Ethereum?
Impact of Reduced Fees on Network Activity and Adoption
Ethereum’s transaction fees have plummeted by more than 70% this week, with total daily fees currently standing at $7.5 million, a sharp drop from $23 million just a few weeks ago. This decline follows a recent increment in the gas limit, leading to an increase in block capacity and a decrease in congestion.
In the past, lower fees have typically correlated with a surge in network usage. During previous fee declines in 2021 and mid-2023, there was a noticeable increase in daily active addresses and transaction counts.
If this trend continues, Ethereum could witness a resurgence in on-chain activity. However, the key question is whether this uptick in activity will result in sustained demand rather than short-term speculative spikes.
Could the Sharp Drop in ETH Exchange Reserves Indicate a Supply Constraint?
The Ethereum exchange reserves have experienced a significant decrease, moving from 19.7 million ETH in early January to 18.8 million ETH in just 10 days.
Such a notable decline suggests that investors are transferring assets to self-custody, thereby reducing the immediate supply available for sale.
Historically, similar rapid drawdowns have often preceded price surges. The most recent decline in exchange reserves occurred in Q4 2023, followed by a 35% price increase over the subsequent two months.
If this price trend persists, Ethereum could face a scarcity in supply, especially if demand rebounds alongside lower fees.
Technical Indicators Point to a Lack of Bullish Momentum
Despite improvements in on-chain metrics, Ethereum is still down 1.1% YoY at the moment, trailing behind Bitcoin (+89.6%) and Solana (+68.7%).
Recent data has also revealed strong resistance around $2,800, with ETH struggling to surpass it despite an increase in accumulation. The RSI is currently at 39.34, indicating a possible oversold state for Ethereum, yet to witness bullish momentum.
Moreover, the OBV reflects a lack of robust buying pressure – signaling that while the supply is tightening, demand has not seen a surge.
To break out, Ethereum must convincingly breach the $2,800-$2,900 range with a rise in volume. Failure to do so could possibly lead to a retest of $2,500 before any sustained upward movement.