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Why is Ethereum (ETH) price down today?

Why is Ethereum (ETH) price down today?

Ether (ETH) price is down on Dec. 15 after failing to break above the $2,320 resistance level. The recent price correction can be attributed to negative remarks from regulators, a hack that affected nearly the entire Web3 ecosystem, reduced activity in the Ethereum network, and criticism from a former Ethereum Foundation developer.

Ether price index, USD. Source: TradingView

A broader analysis of the time frame provides a different perspective on the relatively narrow 7.6% daily close fluctuations over the past 11 days. Ether saw a 40% rally before entering the current $2,190 to $2,360 range. Consequently, the lack of a clear direction could simply indicate an accumulation period.

SEC chair Gary Gensler speaks and Ledger undergoes a major hack

The price of Ether has also been influenced by the hype surrounding spot exchange-traded funds (ETFs), especially after the $9-trillion global asset manager, BlackRock, confirmed its plans to launch a spot Ether ETF on Nov. 9. Momentum continued to build on Nov. 21 when Bloomberg ETF analysts reiterated a 90% probability of Bitcoin (BTC) ETF approval by Jan. 10.

However, the regulatory landscape changed on Dec. 15 when the U.S. Securities and Exchange Commission (SEC) released a statement regarding its denial of a petition from the Coinbase exchange. SEC Chair Gery Gensler alleged that existing laws and regulations apply to “crypto securities markets” and added that “now is the right time for regulatory action.”

What is more concerning is that the SEC’s latest note cites “outsize fraud, abuse, and noncompliance” in the cryptocurrency market and emphasizes that “the investing public benefits when intermediaries are registered and overseen.” Regarding Coinbase’s main complaint about “discretionary rulemaking,” Gensler noted that such actions are “a critical element of our ability to faithfully execute Congress’s mandate.”

The Ledger connector hack on the morning of Dec. 14 is also responsible for the recent negative impact on Ether’s price. The incident exploited Ledger’s tool that enabled communication between its hardware wallets and various decentralized applications (DApps). The hacker used a phishing exploit to gain access to a former Ledger employee’s Node Package Manager JavaScript account.

According to the Linea team, a zero-knowledge rollup by ConsenSys, the attack also impacted the leading wallet provider, MetaMask, and affected the entire Ethereum Virtual Machine (EVM) ecosystem. The issue was addressed in less than an hour, but it exposed how the Web3 ecosystem still heavily depends on code developed and maintained by corporations. Essentially, the breach negatively impacted investors’ perception of the decentralized finance (DeFi) industry.

Related: Ledger attack shows company ‘learned nothing’ after multiple breaches-ENS developer

Ethereum DApps were impacted by high network fees

The Ethereum network is also facing its own problems, opening the door for competing blockchains like Solana (SOL) and Avalanche (AVAX). For instance, Ethereum’s average transaction fee of $9.90 is impractical for most transactions, forcing users to deal with the added complexity and risks of resorting to layer-2 solutions.

These issues are reflected in Ethereum’s total value locked (TVL), which has declined by 5% since Nov. 30 to the current ETH 12.26 million, hovering near its lowest level since August 2020. In comparison, Solana’s TVL increased by 14% in SOL terms during the same period. Still, not every DApp requires large deposits, and even DeFi applications are optimizing their liquidity pools. Consequently, one should also analyze the activity in terms of volumes.

Ethereum and Solana daily DApp volumes in USD. Source: DefiLlama

Notice that decentralized application volumes in Ethereum have remained below the $1.8 billion threshold for over a month, while the Solana network experienced a healthy increase to $700 million per day. Avalanche’s current $250 million daily average might seem small compared to leading blockchains, but it represents a 250% growth since late November.

Negative remarks from a former Ethereum Foundation developer have also caused a stir among Ether investors after a Dec. 14 post from Andrew Howard on the X social network.

It is worth noting that the social network post came at a time when Ether was already facing pressure from other sources, notably regulation and declining network activity, which might have exacerbated its negative appeal.