Ethereum in Turmoil: Price Crashes, L2s Booming, and NFTs Sinking in July
Ethereum in Turmoil: Price Crashes, L2s Booming, and NFTs Sinking in July
July 2024 painted a complex picture for Ethereum with price crashes, strong Layer 2 activity, and more. While its DeFi ecosystem flourished with innovation, the broader market grappled with headwinds. This report delves into the key events that shaped Ethereum’s trajectory in July and explores the road ahead.
Key takeaways: ETH price crashes 16.5% in early July before rebounding with a 19% gain. However, a sharp 10% drop followed the launch of spot Ether ETFs, bringing the month to a close at $3,321.
Ethereum network activity declined in July, with weekly active and new addresses down 22.8% and 14%, respectively, compared to June. Ethereum’s daily transaction fees plunged 67% from Q1’s peak, averaging below $3 million in July.
Despite a 13% increase in TVL to $59.6 billion, Ethereum’s dominance faces challenges. Solana surpassed Ethereum in daily active addresses and transactions, while The Open Network and Binance Chain also gained traction.
Ethereum Layer 2 solutions like Base, Arbitrum and Linea thrived, with a 127% increase in average daily active addresses in H1 2024. L2 TVL surged 245% in 30 days to $44.5 million ETH.
Spot Ether ETFs saw initial inflows of $1.06 billion but were overshadowed by $2.116 billion outflows from Grayscale’s ETHE. BlackRock’s iShares Ethereum Trust led with $712.8 million inflows, while Fidelity’s Ethereum Fund attracted $297.1 million.
Ethereum’s NFT market declined 49% in July, with Blur capturing 60% of the market share. Sorare led NFT sales, while Bored Ape Yacht Club and CryptoPunks experienced declines.
What is Ethereum?
Founded in 2013 by Vitalik Buterin, Ethereum serves as a distributed blockchain computing platform designed for the execution of smart contracts and decentralized applications (DApps). The network enables users to create and innovate extensively with smart contracts, catalyzing the emergence of various assets and industries such as decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), Web3 and beyond.
At its core, Ethereum features an execution engine tailored for smart contract processing, known as the Ethereum Virtual Machine (EVM). In addition, Ethereum employs a proof-of-stake (PoS) consensus mechanism, which enhances its scalability and sustainability.
Ethereum Faces Headwinds: Price Drops, Network Activity Slows
July 2024 was a turbulent period for Ether (ETH). The month began with a steep decline from $3,440 to a low of $2,857 on July 8, representing a 16.5% drop. A subsequent rally pushed ETH to a monthly high of $3,536 on July 21, a 19% gain.
However, this upward trend was abruptly halted on July 25 when the price plunged approximately 10% to $3,170. This sharp correction coincided with the launch of eight spot Ether exchange-traded funds (ETFs) on the New York Stock Exchange and could be a classic case of “sell-the-news.” This trading phenomenon occurs when investors, having anticipated a positive event like an ETF launch, sell their assets immediately afterward, often driving prices down.
Despite this setback, Ethereum recovered some lost ground, closing the month at $3,321. A potential catalyst for this rebound was Donald Trump’s pro-crypto stance expressed at the Bitcoin 2024 conference in Nashville on July 28.
Overall, Ethereum is showing signs of weakness based on several market and technical indicators, suggesting that further declines may occur before a sustained uptrend can begin.
The ETH/BTC ratio has been particularly bearish over the past two months, dropping 16% between May 28 and August 4.
Moreover, Ethereum’s network activity has declined over the last month. Data from The Block shows that weekly active addresses on Ethereum dropped from 555,3k on June 27 to 428,58k on August 3, a decrease of 22.8%.
The number of weekly new addresses created on the Ethereum network continues to decline since May. In July, this number reached 2.79 million new addresses, a decrease of 14% compared to June and 27% compared to May.
The Ethereum network saw a slight 1.2% increase in daily transactions from June to July, rising from 35.05 million to 35.49 million. However, the overall number of transactions has remained relatively stable over the past four months.
Ethereum’s daily transaction fees peaked in Q1 2024, averaging over $10 million per day. In March 2024, the average was as high as $15 million daily. However, since the beginning of Q2, this figure has dramatically declined, settling around $3.5. This downward trend continued into July, with average daily fees dipping below $3 million.
The Ethereum network’s total value locked (TVL), which measures the total deposits in its DApp ecosystem, including Layer 2 bridges, decreased slightly in July. On July 1, Ethereum’s TVL reached $60.5 billion, then dropped to $52.1 billion, and since then has been steadily increasing, reaching $59.6 billion on July 31, marking a 13% increase in 26 days.
While Ethereum continues to hold a dominant position in the Layer 1 ecosystem, recent data reveals a shift in on-chain activity. Solana (SOL) has emerged as a strong contender, surpassing Ethereum in key metrics such as daily active addresses and transaction volume, according to Artemis. Additionally, The Open Network (TON) and Binance Chain (BNB) have gained traction, often overtaking Ethereum in these metrics. These developments indicate a more competitive landscape within the Layer 1 sector.
Spot Ether ETFs: Initial Enthusiasm Drowned Out by Grayscale Outflows
July 2024 was a month of wild swings for U.S. spot Ether ETFs.
The long-awaited launch on July 23 sparked initial excitement with over $1.06 billion in trading volume on the first day.
The New Eight taking in $590m on first day is huge, more than I guessed (the New Nine in btc race did $720m, so Eth was 83% of that). It needed it too bc $ETHE unlock was also bigger than I thought. Either way good to start life in the green at +$106m. https://t.co/vWU6LQlBx6 — Eric Balchunas (@EricBalchunas) July 24, 2024
But the honeymoon period was short-lived, and the newly launched Ether ETFs were overshadowed by significant outflows from Grayscale’s converted ETHE product due to its relatively high 2,5% fee, which totaled more than $2.116 billion as of August 2. This resulted in a net outflow of $511 million for the Ether ETF market, according to data from Farside Investors.
Notably, Grayscale’s ETHE was the only Ether ETF to log negative flows; eight other Ether ETFs saw net inflows. Leading the charge, BlackRock’s iShares Ethereum Trust (ETHA) and the Fidelity Ethereum Fund (FETH) attracted $712.8 million and $297.1 million, respectively.
However, investor interest in Ether ETFs has been muted, in part due to the broader cryptocurrency market slump. Adding to the uncertainty, Mads Eberhardt, Senior Analyst at Steno Research, warned on August 2 that the coming week would be critical for Ethereum. He emphasized the need for strong net inflows into Ether ETFs to counterbalance massive outflows from Grayscale’s Ethereum Trust.
Oh dear, it will be crucial for Ethereum to demonstrate a strong net inflow next week to show that its massive Grayscale outflow was merely early to that of Bitcoin. pic.twitter.com/oEecbLBk2b — Mads Eberhardt (@MadsEberhardt) August 2, 2024
Matt Hougan, Chief Investment Officer at Bitwise, believes that Ether ETFs will significantly boost ETH prices, which could potentially reach $5,000 by the end of the year. The expert believes that the new Ether ETFs will have a more significant impact on the cryptocurrency’s price compared to Bitcoin ETFs. Hougan cites three key factors: Ethereum’s lower short-term inflation rate, the fact that Ethereum stakers don’t have to sell their ETH they produce, and the substantial portion of Ethereum – 28% – that is currently locked up through staking.
Katalin Tischhauser, Head of Investment Research at Sygnum Bank, predicts Ethereum’s yearly inflows could be 15-35% of Bitcoin’s, reaching $5-10 billion. According to Tischhauser, if the net flows turn positive and accelerate, this will be a strong driver for the price of Ether.
Ethereum Ecosystem Updates
The Ethereum ecosystem experienced notable developments throughout July 2024. These advancements highlight a growing emphasis on transparency and network security within the platform.
Transparency takes center stage as Ethereum price crashes become common
On July 29, 21Shares, a leading provider of crypto exchange-traded products (ETPs), integrated Chainlink’s proof-of-reserve (PoR) system to provide greater transparency for its Core Ethereum ETF.
The transparency created by the new integration could further the path of digital asset adoption.
Securing the network
Recognizing the importance of robust security measures, the Ethereum Foundation teamed up with leading bug bounty platform Immunefi to launch the first-ever “Attackathon” – a protocol-wide initiative aimed at identifying and patching potential vulnerabilities in the Ethereum network. This collaborative approach will foster a proactive security culture, crucial for building trust within the ecosystem.
One audit competition to rule them all 🏆 Immunefi, in collaboration with the @Ethereum Foundation, presents the first-ever Attackathon to enhance Ethereum’s protocol security. 💪 Become a sponsor and help make history ✨
Ethereum turned 9
On July 30, Ethereum celebrated its ninth anniversary. While Vitalik Buterin, the project’s co-founder, acknowledged some may disagree with the timeline, it serves as a reminder of Ethereum’s journey and its evolution into a vital player in the blockchain landscape.
Happy 9th birthday, Ethereum! Looking forward to seeing what the next decade brings. pic.twitter.com/bXq56mIff7 — vitalik.eth (@VitalikButerin) July 30, 2024
Ethereum Layer 2s Surge: Scaling Up, Fees Down, But Challenges Remain
On-chain activity has skyrocketed in 2024, with Ethereum and its Layer 2 scaling solutions leading the way. A new July report from Coinbase Institutional and Glassnode reveals a 127% increase in average daily active addresses on these networks in H1 2024.
According to the report, this growth is primarily driven by the rapid expansion of Layer 2s. These networks, built on top of Ethereum, offer faster transaction speeds and lower fees by processing transactions off-chain before committing them to the main Ethereum blockchain. As a result, Layer 2s have become increasingly popular among users and developers seeking a more efficient and cost-effective blockchain experience.
In July, Ethereum’s Layer 2 ecosystem also experienced rapid expansion, with Base, Arbitrum and Linea emerging as the frontrunners. According to data from the analytics platform Growthepie, these three Layer 2s have collectively boasted 18.62 million active addresses over the past 30 days.
The rapid development of faster and cheaper Layer 2 solutions has led to a significant shift in user activity in the Ethereum ecosystem. While overall transaction volume increased by 59% in Q2 2024, the majority of this growth occurred on Layer 2 networks.
Over the past 30 days, the total TVL of Ethereum Layer 2s increased by 245% from 12.9 million ETH to 44.5 million ETH (approximately 32.8 billion as of August 5), according to L2Beat data, and despite Ethereum price crashes throughout July.
This surge in Layer 2 adoption has coincided with a dramatic decline in transaction fees and several Ethereum price crashes. Despite a 59% increase in the number of transactions, fees decreased by 58% over the same period. This fee reduction is largely attributed to the successful implementation of the Dencun upgrade in March 2024.
In July, volumes on Ethereum-based DApps slightly declined by 4%, reaching $188 billion, according to DappRadar data. In comparison, competitor BNB Chain also saw an almost 3 % decline in activity.
In terms of DApps deposits, the Ethereum network remains the leader with 56 billion in TVL.
However, despite increasing on-chain activity on the Ethereum network, its historical stronghold in DEX trading faced a recent test. Fueled by meme coin activity on Pump.fun, Solana captured 29.62% of the DEX market share in July, surpassing Ethereum’s 28.01%. This trend suggests a potential migration of users to alternative platforms.
July 2024 was also a month of both progress and setbacks for the Ethereum DeFi ecosystem. While institutional adoption took a step forward with the launch of Lido’s staking solution, the closure of the ZKX protocol cast a shadow over the month.
Lido targets institutions
Lido Finance, the largest liquid staking protocol, controlling almost 28.7% of all staked Ether, announced Lido Institutional, its institutional-grade staking solution, on August 2. This move signifies growing interest from institutional players in the Ethereum ecosystem, particularly staking, which allows users to earn rewards for holding crypto assets.
Trusted by a growing list of prominent institutional partners, Lido already stands out as a premier choice for many institutions looking to engage in Ethereum staking. Its middleware solution combines the reliability and security necessary for enterprise-grade staking with the… — Lido (@LidoFinance) August 2, 2024
Li.Fi exploited amid Ethereum price crash
On July 16, Li.Fi, an API for Ethereum Virtual Machine, Solana swaps, and bridging, suffered an attack that resulted in a loss of $11.6 million.
Li.Fi confirmed the exploit targeted 153 wallets with the “infinite approvals” option enabled on both the Ethereum and Arbitrum networks. Assets drained included USDC, USDT, and DAI. Users without this option turned on were not affected by the exploit.
Please do not interact with any https://t.co/nlZEnqOyQz powered applications for now! We're investigating a potential exploit. If you did not set infinite approval, you are not at risk. Only users that have manually set infinite approvals seem to be affected. Revoke all… — LI.FI (@lifiprotocol) July 16, 2024
ZKX protocol shuts down amidst user indifference
The Ethereum Layer 2 ecosystem experienced a setback on July 13 with the closure of the ZKX protocol. A social derivatives trading platform built on Starknet, ZKX struggled to gain traction and ultimately became unsustainable.
According to its founder, Eduard Jubany Tur, the platform suffered from minimal user engagement and declining trading volumes. The resulting revenue was insufficient to cover basic operating costs, forcing the difficult decision to shut down the protocol.
Important Statement 30.07.24 With much regret, we have to announce the discontinuation of the ZKX protocol. Despite our best efforts, we have been unable to find an economically viable path for the protocol. (1) All markets have been delisted, positions have been closed and all… — Eduard (@0xEduard) July 30, 2024
Starknet staking on the horizon
However, positive news came from Starknet, an Ethereum Layer 2 solution, itself. Core developer StarkWare submitted a Starknet Improvement Protocol (SNIP) to enable staking on the network. If approved by the community, staking may be launched on the testnet soon, with a planned mainnet release in Q4 2024.
Additionally, StarkWare is set to expand Starknet’s capabilities through the integration of the Cosmos-based Inter-Blockchain Communication (IBC) protocol. This collaboration with Informal Systems will allow Starknet to connect seamlessly with any blockchain compatible with the IBC standard, including those within the Cosmos ecosystem and beyond.
💥 @Starknet is collaborating with @informalinc to join the interchain! Integrating #IBC into Starknet will enable application composability across diverse L2s and L1s. IBC will enable the flow of liquidity both ways between Starknet and the wider interchain ⬇️ https://t.co/lipe5IPlRw — Cosmos – The Interchain ⚛️ (@cosmos) July 24, 2024
Uniswap expands its functionality
Uniswap Labs, the developer behind the Uniswap decentralized exchange, further expanded its reach by launching a wallet browser extension supporting 11 blockchains. Users can now seamlessly manage their crypto assets and interact with DApps across Ethereum, Base, Arbitrum, Optimism, Polygon, Blast, ZKsync, Zora Network, BNB Chain, Avalanche and Celo.
Additionally, Uniswap Labs continued its fight against the SEC’s attempts to regulate DeFi protocols. In a July 9 letter, the company cited the Chevron case as precedent, argued that DeFi protocols should not be classified as securities, and urged the SEC to drop its proposed amendments.
Both the SEC and the industry have better ways to spend their resources than in litigation over an unlawful rule. Our letter to the SEC is here: https://t.co/yAltMdmD3e. 3/3 — Katherine Minarik (@MinarikLaw) July 9, 2024
The Arbitrum Foundation, the team responsible for the Ethereum rollup-based Layer 2 network Arbitrum, proposed allowing its Orbit chains to operate beyond the Ethereum ecosystem, potentially opening doors for broader interoperability.
Additionally, Celo, a mobile-first Layer 1 blockchain platform, launched the Dango Layer 2 testnet, built on Optimism’s OP Stack, marking its first step towards integrating with Ethereum.
📣 Breaking #CEL2 News: the Dango Layer 2 testnet is now live! 🍡 Ahead of EthCC 2024, @cLabs successfully launched the fork of Alfajores testnet, inviting developers to start testing the updated code 🧵 Keep reading for the key benefits & details! ↓ pic.twitter.com/QJgg2RN33y — Celo 🦇 🌳 (@Celo) July 7, 2024
Ethereum’s NFT Dominance Continues, But Challenges Loom
In July, Ethereum once again led the ranking in NFT sales volume despite concerning price crashes and volatility.
Compared to June, Ethereum’s NFT sales remained stable, reaching $142,2 million, an increase of 2%. The data also showed that the Ethereum network attracted 79k buyers and 64k sellers, an increase of 56% and 40%, respectively. The number of NFT transactions on Solana reached almost 603k in July (+61%).
The once-booming Ethereum NFT market continues to face headwinds. Monthly trading volumes on Ethereum NFT marketplaces have been steadily declining since January. Data from The Block reveals a particularly sharp downturn in July, with volumes plummeting by nearly 49% compared to the previous month. The platform recorded just $153.36 million in trade, a far cry from the billions generated at the market’s zenith during the 2021-2022 bull run.
Blur cemented its position as the king of Ethereum NFT marketplaces in July, capturing roughly 60% of the market share. However, the platform’s trading volume plummeted 60% month-over-month to $90.47 million, but still significantly outperformed its competitors.
OpenSea maintained its position as the second-largest Ethereum NFT marketplace, with trading volume holding steady at approximately $49.6 million (app. 30% of the market share).
The Ethereum NFT collection Sorare emerged as the top performer, generating $10.4 million in sales, a substantial 92% increase over the 30 days. Bored Ape Yacht Club, once a dominant force, experienced a downturn, with sales dropping nearly 30% to $8.7 million. Similarly, CryptoPunks saw a significant decline of 46.5%, generating $8,2 million in sales.
A notable outlier was the c_HyPC NFT collection, which defied the overall trend by increasing sales by 600%, securing the fifth spot in the rankings with $5,7 million in revenue.
Pixelverse expands character roster with Pudgy Penguin
Gaming platform Pixelverse announced on July 16 that it will add the iconic Pudgy Penguin “Pudgy” character from the popular Ethereum NFT collection to the game.
The move brings together popular crypto mascots, including Dogecoin (DOGE) and Solana’s Mew, a character that represents a Solana meme coin, under one virtual roof. Players will soon be able to embody the Pudgy Penguin in the Pixelverse game, with a full-fledged Pudgy Penguins game slated for release in 2025.
✨Pudgy Penguins Joins Pixelverse 🐧 @pudgypenguins is now part of PixelTap! The beloved character from the Pudgy Penguins NFT collection is available to fight. Pudgy is bringing extra cuteness to our cyberpunk world, but rest assured, he can fight and even use his power to… pic.twitter.com/cmChFtKIvU — Pixelverse (@pixelverse_xyz) July 16, 2024
Notable NFT launches in July: Otterly (July 1 – July 8): Ollie the Otter, the friendly face of the new NFT project Otterly, invites users to embark on an aquatic adventure. The project kicks off with the Otter Club NFT drop, a limited edition collection of 10,000 NFTs released in three phases. Each NFT serves as a golden ticket to a thrilling treasure hunt for a hidden wallet brimming with 5 billion OTTR tokens.
Ollie the Otter, the friendly face of the new NFT project Otterly, invites users to embark on an aquatic adventure. The project kicks off with the Otter Club NFT drop, a limited edition collection of 10,000 NFTs released in three phases. Each NFT serves as a golden ticket to a thrilling treasure hunt for a hidden wallet brimming with 5 billion OTTR tokens. Pixel Cat Club Next Gen (July 2 – July 9): The PixelCatClub NFT collection boasts a vibrant community of 1,850 unique digital feline companions. Each pixelated cat showcases a distinct blend of colors and stylish accessories, offering collectors a diverse array of collectible options.
The PixelCatClub NFT collection boasts a vibrant community of 1,850 unique digital feline companions. Each pixelated cat showcases a distinct blend of colors and stylish accessories, offering collectors a diverse array of collectible options. Cool Punks (July 7 – July 15): Cool Punks is a collection of 9,000 NFTs inspired by the iconic CryptoPunks. Owning a Cool Punk offers the chance to win up to 1 ETH and take part on various airdrops.
Ethereum Price Crashes Facing Balancing Act Between Growth and Challenges
July 2024 was a month of contrasts for Ethereum, with several price crashes and a decline in NFT sales. While the Layer 2 ecosystem showcased significant growth and innovation, the broader market faced challenges. The price volatility, coupled with declining network activity and the mixed performance of Ether ETFs, highlights the complex dynamics at play.
Looking ahead, Ethereum’s long-term success hinges on its ability to navigate these challenges and capitalize on emerging opportunities. Sustained growth in the Layer 2 ecosystem, coupled with innovative DeFi applications and a favorable regulatory environment, could bolster investor confidence and drive price appreciation. However, the competitive landscape, including the rise of Solana and other alternatives, poses significant hurdles.
Crucially, Ethereum’s path to $4,000 in 2024 depends on addressing key scalability challenges. Implementing sharding and miner extractable value (MEV) mitigation strategies, as outlined in the Danksharding upgrade, is essential for increasing transaction capacity and improving user experience. Additionally, the introduction of Verkle trees and zero-knowledge SNARKs will enhance data availability and privacy, further strengthening the network.
By effectively executing its roadmap and fostering a vibrant ecosystem, Ethereum can solidify its position as a leading blockchain platform and unlock its full potential.