Why is Ethereum (ETH) price down today?

Ether (ETH) price is down on March 10, reaching a monthly low of $1,379 after New York Attorney General Letitia James alleged in a lawsuit against major crypto exchange KuCoin for not registering securities while maintaining that Ether is a security under the law.

Ether price was dealt another blow when Silicon Valley Bank stock lost $80 billion on March 9 and was subsequently closed by the FDIC on March 10. This is one day after 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. Silicon Valley Bank is also a crypto-friendly bank, providing services to venture capital firms like Sequoia and a16z.

On top of regulatory and bank-related headwinds, Ether price has followed the direction of Bitcoin and the wider crypto market after Federal Reserve chair Jerome Powell issued hawkish statements about inflation in the U.S. This has market participants expecting a 0.50% or higher raise in interest rates at the March 22 Federal Open Market Committee meeting.

The Ether sell-off also ignited a wave of Ethereum long liquidations, with over $42 million in contracts liquidated on March 9.

Ethereum long liquidations. Source: Glassnode

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 enact 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.

Regulators focus turns toward Ether

The debate surrounding whether Ether should be classified as a security token in the United States, is not new but is leading to a lack of investor confidence. U.S. regulators are trending towards taking swift action on the cryptocurrency ecosystem. 

While the U.S. Commodity Futures Trading Commission chair believes Ether is a commodity rather than a security, the New York AG disagrees. In a press release, James said,

“This action is one of the first times a regulator is claiming in court that ETH, one of the largest cryptocurrencies available, is a security. The petition argues that ETH, just like LUNA and UST, is a speculative asset that relies on the efforts of third-party developers in order to provide profit to the holders of ETH. Because of that, KuCoin was required to register before selling ETH, LUNA, or UST.”

In the U.S. Congress, Republican members continue to criticize the Biden administration over its digital asset policy, but if Ethereum is deemed a security in the United States, centralized exchanges may be forced to delist Ether for U.S. customers. The security classification could also negatively impact altcoins, DApps and decentralized exchanges built on Ethereum.

Total value locked in the Ethereum ecosystem plummets

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 $26.1 billion. The monthly low was accompanied by a drastic 7.2% 24-hour decrease in TVL on March 10. 

Ethereum ecosystem total value locked. Source: DeFiLlama

Ether price drop comes as centralized exchange netflow shows investors removing funds from centralized exchanges possibly due to the KuCoin news. On March 10, 43,000 more Ether was withdrawn from centralized exchanges. 

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 Semi-annual 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 0.50% basis point interest rate increase.

Interest rate probability. CME Group

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 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.

SOURCE