Ethereum risks falling to $2,395 as CoinShares report notes that L2s could cannibalize level 1s.

• Ethereum’s main value driver is centered around asset speculation, CoinShares says.
• Ethereum ETFs saw net inflows of $62.5 million on Tuesday, the highest level since August 6.
• Ethereum could drop to $2,395 after breaking a key support level.

Ethereum (ETH) fell over 2% on Wednesday following a recent CoinShares report detailing token transfers and asset speculation as some of the main value drivers for ETH. The report also highlighted how the recent Mainnet upgrade complicated the Layer 1 (L1) and economic design of ETH.

Daily Market Reasons: Key Ethereum Value Drivers

CoinShares recently released a report detailing the key value-generating features of Ethereum. The report noted that token transfers, largely dominated by ETH and stablecoins, are Ethereum’s main value drivers.

“It demonstrates the continued importance of ETH as a native network asset and the critical role that stablecoins play in the broader industry,” wrote CoinShares analyst Matthew Kimmell.

Kimmell added that while Ethereum has grown to boast more than $1 billion in user fees spent annually, most of the activity in its ecosystem is “very concentrated in a few use cases centered around asset speculation.”

Ethereum Fee Expenses

The report also highlighted that Ethereum has focused heavily on scaling through Layer 2 solutions, but this has come at the expense of cannibalizing Layer 1 and complicating its relationship with ETH.

“In our view, the most recent major change, EIP-4844, which strongly boosted layer 2, worked directly against the economic benefits of the EIP-1559 design, which tied the value of ETH to the demand of its layer 1 platform,” it noted Kimmell. .

Meanwhile, Ethereum ETFs saw net inflows of $62.5 million on Tuesday, the biggest inflows since August 6. BlackRock’s ETHA was largely responsible for the positive flows, with more than $59 million in inflows. Grayscale’s ETHE the other day saw zero net flows.

Ethereum risks a drop to $2,395

Ethereum is trading around $2,570 on Wednesday, down more than 2% on the day. The top altcoin saw $15.05 million liquidations in the last 24 hours, with long and short liquidations accounting for $10.15 million and $4.9 million, respectively.

On the 4-hour chart, Ethereum broke above a key rectangle support level at $2,595 to offset some market inefficiency seen on Sunday. If its price fails to rise from any of the 50-day, 100-day and 200-day simple moving averages (SMA), ETH could move to the $2,395 level.

ETH/USDT 4 Hour Chart

The Relative Strength Index (RSI) momentum indicator has fallen below its neutral level, while the Stochastic Oscillator is in the oversold region.