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Why is Ethereum (ETH) price down today?

Ether (ETH) price is down on Dec. 16 and the pre-FOMC rally to $1,350 was obliterated after Federal Reserve chair Jerome Powell issued hawkish statements following a 0.50% hike in interest rates.

Ether price was dealt another blow when Silvergate Capital Corporation decided to voluntarily liquidate Silvergate Bank. Silvergate Bank was one of the major crypto-friendly banks before a wave of companies dropped their services due to liquidity concerns.

The Ether sell-off also ignited a wave of Ethereum long liquidations, totaling $70 million from March 1-8.

Ethereum long liquidations. Source: CryptoQuant

The rush of long Ether liquidations comes when Ethereum volume, which could offset liquidations, is down 90% since March 2020. 

While some analysts believe Ethereum still possesses multiple bullish catalysts that warrant investing in the asset, on-chain data paints a grim picture of its short-term price prospects.

Here are three reasons why Ether price is down today.

Total value locked in the Ethereum ecosystem declined in March 

The total value locked metric is a common way to examine the health and sentiment of a proof of stake (PoS) blockchain like Ethereum. Ether price fell as the TVL across the Ethereum ecosystem fell from a monthly high on March 2 of $29.7 billion to a monthly low of $28.1 billion. The monthly low was accompanied by a 1.75% 24-hour decrease in TVL on March 9.

Ethereum ecosystem total value locked. Source: DeFiLlama

The Ether price drop comes as centralized exchange netflow shows investors sending more funds to a CEX than withdrawing to a decentralized exchange. On March 7, 21.7 million more Ether was sent to centralized exchanges than withdrawn. Typically, investors tend to move funds to a CEX to sell into deep liquidity.

Ethereum exchange netflow. Source: CryptoQuant

Rising inflation raises fears of a higher rate hike

On March 7, Federal Reserve Chairman Powell addressed the U.S. Senate Committee on Banking, Housing and Urban Affairs in the Semiannual Monetary Policy Report to Congress. 

In prepared remarks, Powell hinted at higher interest rate increases to control inflation,

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes. Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time. Our overarching focus is using our tools to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored.”

Powell’s remarks reverberated throughout the stock market, which closely correlates to Ether’s price. After anticipating only a 0.25% basis point interest rate increase on March 1, according to CME’s FedWatch tool, the market now expected a 0.5% basis point interest rate increase.

Interest rate probability. CME Group

Ethereum daily active users decline ahead of the Shanghai upgrade

Despite briefly overtaking Bitcoin (BTC) for more active users on Jan. 8, the Ethereum network continues to see less activity than BTC. In addition to Bitcoin maintaining more active users than Ethereum, a top Ethereum-based NFT company, Yuga Labs launched a BTC blockchain-based NFT auction on March 7 which raised $16.4 million.

Bitcoin and Ethereum daily active users. Source: TokenTerminal

Investor expectations for 2023

Initially, the Shanghai hard fork, was slated for March 14. On March 2, Ethereum developers announced a delay in the hard fork until April. Despite on-chain data suggesting the Shanghai hard fork will not bring massive sell pressure, Ether price will likely remain volatile. 

While investors’ appetite for high-risk assets and their interest in DeFi could continue to diminish with more the rollout of higher interest rates in the U.S., factors like clarity on regulators’ stance on cryptocurrencies and the eventual increase in Ethereum network-based protocols may prove to be a long-term catalyst for price growth.