Ethereum is seeing a widening gap between activity levels on the network and spot prices, suggesting that transactional activity alone is not driving demand for Ether.
According to CryptoQuant, activity on the Ethereum network is reaching record highs, including active addresses, token transfers, and smart contract calls.
According to CryptoQuant, the total number of active addresses in February was more than 1.1 million, more than double the previous period, while token transfers exceeded one million in March, up from around 750,000 in December.
Smart contract and automated protocol token transfers also hit record highs, reflecting the growth of decentralized finance (DeFi), stablecoins, automated protocols, and layer 2 ecosystems.
Lisk’s Ethereum layer-2 head of research, Leon Weidmann, also observed on Wednesday that usage of Circle USDC (USDC) on Ethereum has reached an all-time high, according to Token Terminal.
However, despite network activity, the price of Ether (ETH) is down nearly 60% from its peak, showing a “clear gap between network usage and asset activity,” said Julio Moreno, head of research at CryptoQuant, on Tuesday, calling it the “paradox of adoption.”
The findings challenge previous notions that crypto network activity translates into demand for assets, leading to price increases.
ETH price dynamics driven by capital flows
Moreno added that the yearly change in Ethereum’s realized capitalization has turned negative, indicating that capital is leaving Ether.
“This closely matches the weakness of the ETH price and shows that the dynamics of the ETH price is primarily driven by capital flows, rather than the increase in network activity.”
related to: Ether Funding Rate Goes Negative: Will ETH Bears Take Control Again?
The price of ETH is in bearish territory
Ether is currently trading just over $2,000 and is consolidating just above the levels it has been in for over a year in the 2022-2023 bear market.
However, it’s not just Ether suffering, as the broader crypto market is down 44%, or nearly $2 trillion, from its October peak.
Many altcoins are down 80% amid a liquidity drought fueled by a risky investment environment fueled by geopolitical conflicts.
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