Ethereum is suffering a drop in investor interest following August’s historic market break

• Ethereum ETFs saw $44.5 million in outflows last week, led by Grayscale’s ETHE.
• Trading volume and the number of Tier 1 trades have declined significantly as investors have become increasingly risk averse.
• Ethereum could continue to consolidate after failing to break the resistance of a key rectangle.

Ethereum (ETH) fell nearly 3% on Monday after a decline in key metrics including institutional interest, trading volume and the number of transactions. The decline is also evident in the price of ETH, which failed to break a key price resistance.

Daily Market Reasons: Ethereum Suffers Historic Decline in August

U.S. spot Ethereum ETFs had a total net outflow of $44.5 million last week after posting seven consecutive days of negative flows. While the “new eight” saw minor inflows, the impact of ETHE’s $118 million outflows from Grayscale offset their positive inflows.

Weak flows negatively impacted the ETH price with a low weekly gain of 3%. To add insult to injury, the Ethereum Foundation sold 35,000 ETH on Friday when the market briefly rallied.

In comparison, Bitcoin ETFs have seen seven consecutive days of net inflows despite outflows in Grayscale’s GBTC. This pattern suggests declining institutional interest in Ethereum, even as the market anticipates a rate cut from the Federal Reserve (Fed).

The trading volume of the Ethereum blockchain and the number of transactions in August also indicate a decrease in investor interest in the leading altcoin. According to data from The Block, the 7-day moving average of daily trading volume on the upper layer 1 fell from $6.56 billion on July 26 to $2.9 billion on Monday.

While the decline could have been attributed to the recent market crash, Ethereum’s monthly transaction count also fell to 27.27 million — the last low seen in May 2020 — with just five days left in August. This confirms a risk-averse attitude among investors, which aligns with a historic summer decline for Ethereum.

On the bright side, Coinbase analysts David Duong and David Han pointed out that the decline in Ethereum activity in August was not as strong as in previous years.

“The decline in August trading volumes for Ether compared to the previous three months was 7.7%, compared to the average decline of 16.8% seen over the past five years,” Coinbase analysts noted.

ETH Technical Analysis: Key resistance prevents recovery of key support level

Ethereum is trading around $2,700 on Monday, down 2.5% on the day. Over the past 24 hours, ETH has supported $21.35 million worth of liquidations, with long and short liquidations accounting for $17.17 million and $4.17 million respectively.

Ethereum tested resistance at $2,817 on Saturday, but bounced back quickly after hitting its highest price since the August 5 market crash.

The price drop after ETH posted a long-legged Doji candle confirmed the reversal. Doji candles reflect traders’ indecision and are often used to detect price/trend reversals.

ETH/USDT Daily Chart

The move kept the price of ETH trading in a key rectangle as reflected in the chart above. A daily candlestick above the upper horizontal line resistance would see ETH reclaim a major support level that it has held for nearly six months. If ETH completes such a move, it could start trading in another key rectangle and rise towards resistance around $3,542.

A breakout above $3,542 could see ETH approach yearly resistance at $4,093 and set a new all-time high. The 200-day and 100-day simple moving averages (SMA) serve as potential resistance.

The Relative Strength Index (RSI) Simple Moving Average (SMA) has been rising since making a low on August 15th. If the SMA breaks above its median line, it signals a potential bullish momentum reversal.

Since August 10, the Awesome Oscillator (AO) has posted consecutive lower green bars. If these green bars continue and the AO moves above zero, it will also signal a potential bullish reversal.

Bottom line, ETH may consolidate for a few weeks before staging a proper rally. A daily close of the candlestick below support at $2,111 will invalidate the thesis.