An important Ethereum network metric just spiked to a level that has historically preceded major crashes in the digital asset’s price. If history repeats, then ETH could be in serious trouble, potentially dropping to its next major support level around $1,900.
Ethereum transfer count enters dangerous territory
The Ethereum Transfer Count (ETC) – smoothed by a 14-day Simple Moving Average (SMA) – recently surged to a peak of 1.17 million. Going by past data, the rise in ETC is concerning to say the least, as it has always led to a massive price crash in Ether price.
The ETC metric measures the total number of transactions moving ETH – or tokens across the Ethereum network – over a given period. Traders use it to ascertain network activity, with sharp spikes signaling periods of heightened speculation or distribution.
Crypto analyst CryptoOnChain said that whenever the ETC level has reached such highs, it has resulted in major market crashes. For example, in January 2018, a massive spike in ETC marked the cycle top, immediately preceding the start of a prolonged bear market.
Similarly, in May 2021, a similar sharp increase in the ETC metric coincided with a sharp fall in ETH’s price. The cryptocurrency fell from slightly above $4,200 to as low as $1,500 in the same month.
What is the on-chain explanation?
While at first heightened on-chain activity may appear as a positive sign for the underlying network – confirming its rising user adoption – a sudden surge in ETC near price highs shows an overheated network.
Typically, this metric surges during times of excessive activity on the network, suggesting extreme market capitulation or euphoria. In simple words, it hints that a significant amount of digital assets is making moves on the network.
In usual cases, overwhelming network activity can mean two things. First, it shows that the asset may be entering the ‘distribution’ phase, which comprises long-term investors moving their assets to exchanges to realize profits.
It can also indicate that the market is currently experiencing peak volatility, which results in a trading activity climax that often marks a local top. Under both cases, the likelihood of the ETH price crashing has increased significantly.
That said, not all is doom and gloom for ETH. For instance, the Ethereum network is slated to implement the ERC-8004 standard to bolster on-chain AI agents. From a price perspective, past data shows that ETH has always rebounded in Q1 of the following year after a weak Q4.
