The high volatility of the eth usd price is due to a number of market mechanisms and technical characteristics. In November 2023, the 30-day annualized Ethereum volatility was 68% (13% for gold and 15% for the S&P 500 index). From March to November 2023, its price ranged from $1,500 to $2,100 (with an amplitude of 40%), much higher than that of traditional assets. Supply and demand, the staked Ethereum reached 27 million (22.5% of circulating supply). After the Shanghai upgrade, the daily average withdrawal volume was 18,000 (approximately 33 million US dollars), resulting in a 0.8% increase in circulating supply on a monthly basis (Glassnode #GN2023). The locked value (TVL) of DeFi protocols’ value has dropped from 105 billion US dollars in 2021 to 43 billion US dollars (DefiLlama), but the Gas fee volatility (5-200 Gwei) directly affects the miners’ selling pressure. For instance, in May 2023, during the Memecoin bubble, Gas fees hit 200 Gwei (approximately $40 per transaction), and miners’ daily income surged to $48 million (320% more than the previous month), triggering a short-term sell-off.
Regulatory uncertainty heightened volatility. In June 2023, the SEC sued Coinbase (Case No. 1:23-cv-01599), asserting its ETH trading as a securities activity, sending the eth usd price declining by 12.7% in a day. After the EU’s MiCA Act finally stated ETH to be a “utility token” unequivocally, it climbed by 9.3% in 24 hours. The derivatives market makes a significant leverage effect. The outstanding volume of CME Ethereum futures reached 5.6 billion US dollars (all-time high), and the perpetual contract funding rate increased to 0.05% (payment by long) in extreme market conditions. The price of ETH changed by 14% in 9 hours (8% for gold over the same duration) during the October 2023 Israeli-Palestinian war. The liquidation volume reached 320 million US dollars (Coinglass #CG2023).
The technological upgrade has caused the supply and demand to reorganize. After the Shanghai upgrade in April 2023 to facilitate staking withdrawals, the validators had increased by 18% month-over-month (from 500,000 to 590,000), whereas the proportion of liquid staking derivatives such as Lido grew to 38% (about 10.2 million ETH). If a large-scale redemption, the daily circulation may increase by 42,000 (around 78 million US dollars). Layer2 growth (such as Arbitrum’s 3 million transactions per day trading volume) worsens the mainnet reliance, but ecological competition erodes the capability to accrue value – the Base chain introduced by Coinbase boasts only 320 million US dollars of TVL (0.7% of the Ethereum ecosystem) and was not able to efficiently drive the eth usd price.
The whales’ behavior concurred with market sentiment. Accounts that held over 10,000 ETH (12% of circulating supply) increased their balances by 280,000 ETH (approximately 520 million US dollars) at the support level of 1,800 US dollars, while simultaneously the exchange reserves increased by 5.4% (to 18.6 million ETH), pushing bulls and bears into deadlock. On July 2023, 40,000 ETH (approximately 74 million US dollars) was transferred onto the exchange within a day, and the price decreased by 6.8% within two hours. The macroeconomic relationship has strengthened. During the cycle of Federal Reserve’s interest rate increase, ETH’s correlation coefficient with the Nasdaq 100 Index was 0.81 (0.35 in 2021) in 30 days. When the US Treasury yield crossed 5% in October 2023, ETH dipped by 9.3% over the course of one week.
The on-chain action comes and goes from time to time. The NFTs trading volume (7-day MA) dropped from its all-time high of 3.5 billion US dollars in January 2022 down to 420 million US dollars (CryptoSlam). However, in November 2023, the Blur platform airdrop caused trading volume to rise by 180% in a single day. The unexpected short-term increase in Gas fees pushed the eth usd price down by 7.5%. The environmental cost debate rages on. After the Ethereum merge, the yearly power consumption has dropped to 0.01 TWh (a 99.9% reduction from the PoW era), but the risk of centralization of staking nodes (with the top three staking service providers controlling 58% of the share) still raises selling issues.