Question:

The price of Ethereum has sank in recent days - how does it compare to other tokens amid a general market downturn?

Can you find evidence of any potential causes for ETH's struggle? Are there any other indicators that could help us predict whether/when it could recover?

Overview of analysis:

In this investigation, the recent drop on ETH price has been determined and this investigation divided into three parts:

• Track the price of ETH and compare it with other popular tokens

• Track the flow of ETH into the CEXs and FTX accounts

• Trading activity of ETH token

This analysis is done since the start of November 1, 2022 and the various aspects of ETH drop can be seen from the following parts.

Methodology:

The data provided by Flipside has been used to handle this analysis.

This following steps have been used to handle this investigation:

• Step 1: Price analysis
  • Metrics→ Over time price, daily price change in %, total price drop in %
  • Popular tokens→ BTC, SOL and ALGO
• Step 2: ETH flow onto CEXs and FTX accounts:
  • Metrics→ Inflow/outflow volume, Net flow, Distinct senders and receivers
  • FTX accounts→ from ethereum.core.dim_labels where label ilike '%alameda%' or label ilike 'ftx%’
  • CEXs→ from ethereum.core.dim_labels where label_type='cex'
• Step 3: Trade analysis of ETH
  • Metrics→ Swap count, unique swappers, volume of swap, swap type (from and to), Average swap volume
• Step 4: Draw conclusion by aggregating outcomes of previous steps

About Ethereum blockchain and ETH:

Ethereum is a network based on blockchain technology that enables the creation of decentralized applications (dApp). These decentralized applications are created using contracts called smart contracts, and their distinctive feature is the absence of fraud, censorship, downtime, and third-party interference.

Ethereum runs on a decentralized computer network, called a distributed ledger or DLT (Distributed Ledger Technology). DLT itself has many sub-branches, blockchain being one of them. Blockchain manages the data of transactions and blocks. Computers that are responsible for processing transactions and building new blocks in blockchain networks are known as nodes; The more nodes there are, the more decentralized the network will be. Nodes must download the entire blockchain, which includes the history of all transactions, along with the corresponding software (which is called the client) and by providing their processing power (in proof-of-work networks) or their coins (in networks Proof of Stake) to process transactions and build blocks.

All blockchain networks have their own native digital currency, and in the case of the Ethereum blockchain, this digital currency is EٍTH.

Part 1: Track ETH and other popular tokens price

Part 2: Track ETH transfer into the FTX accounts and CEXs

Findings:

The first part of this analysis investigate on the price of ETH and other popular currencies:

• The ETH has been experienced about 26.7% drop in price since start of November and compare to BTC as a leader of crypto universe it experienced more.
• The price deviation on daily basis demonstrated that the highest price drop occurred on November 9 with over 18% drop.
• The 7 and 15 day moving average price of ETH currency reveal the slope of price drop averagely.

Part 3: Trade analysis of ETH

Findings:

Now lets see how transfer volume of ETH token onto CEXs and FTX accounts have been affected in that time period (November 1st, 2022):

• It can be seen that on that time period users withdraw their ETH from CEXs and the highest outflow from CEXs occurred on November 10 with over 1.08 million ETH.
• The net flow of ETH onto CEXs reveals that the price of ETH has positive interdependency with net flow of ETH onto CEXs.
• We said that the main reason of that drop is because of FTX crisis. Lets keep eyes on the flow of ETH onto FTX accounts.
• The highest outflow from FTX accounts happened on November 7 with over 477.23k ETH and after that date the price drop of ETH accelerated.

Findings:

This part contains the trade analysis of ETH currency:

• Users swap from ETH into other tokens over the selected time period and the volume of ETH for “Swap from ETH” action is far larger than “Swap to ETH” action.
• Over 22 million ETH have been have been swapped from ETH into other tokens and the highest volume since November 1st.
• The average volume of swap over time reveals that the highest average volume is for “Swap from ETH” action specially on November 10 with over 252 ETH tokens per swap.

Reasons of ETH drop:

The recent changes in the price of Ethereum followed the fall resulting from the FTX exchange crisis and the intensification of panic selling in the market.

> The fear of illiquidity on FTX and the inability of the exchange to meet its debts led customers to immediately begin making withdrawals, which led to a vast liquidation of cryptocurrencies across the exchange. FTX’s troubles began with a CoinDesk report earlier in November that said a large amount of the exchange’s native FTT token was held by Alameda Research, a sister company to FTX exchange. In fact, CoinDesk reported that nearly a third of Alameda’s holdings could be in FTT token. If this is the case, that means both companies have shaky foundations.

Ethereum is currently trading below $1,200 and has been stuck in a descending triangle pattern for nearly two weeks. The formation of lower price levels in the descending triangle pattern will lead to the continuation of the downward trend and the slowing down of the upward movement. Therefore, if this scenario occurs, eventually the next prices will even cross the support neckline and the downward trend will resume. Ethereum's small price spread (the difference between buying and selling prices) within the triangle pattern has made this area a no-trade area, moreover, prices are close to the top of the pattern, indicating that a price breakout is imminent.

Conclusion and ways of recovering ETH price:

As mentioned in the methodology section by aggregating the consequences of the previous parts the following statements have been drawn:

• As we mentioned, the main reason for the fall in the price of ETH is the crisis related to FTX and Alameda research group. Also, the psychological impact caused by this behavior and the decrease in public trust of the world of digital currency has caused a further drop in the price of ETH.

• Cryptocurrencies are also subject to hacks and future regulations, which may affect their overall value. Also, The U.S. is still in the midst of deciding whether cryptocurrencies are securities, commodities or something else entirely.

• The general state of crypto universe and the price of ETH will stabilize and increase due to the increase in security related to Ethereum-based protocols. Also, the decision of the US government can have a significant impact on the fate of ETH and Ethereum network.

References:

• FTX crisis
• Article about ETH price drop
• Article about price prediction

Author:

Credited by MZG

Discord handle: m.zamani#0361

Twitter handle: @GargariZamani