The Ether price can’t break $1,970 for 4 reasons.

Ether’s price faced resistance after reaching the $1,970 level on July 3. Several factors contributed to the rally being capped, including the increased likelihood of more interest rate hikes in the coming months and a stricter regulatory environment for cryptocurrencies.

Macro headwinds from the Fed

In addition to external factors, the Ethereum network has experienced withdrawals from its smart contract applications, which have also tempered the June rally.

Investors are now questioning whether the tailwinds from requests for a spot Bitcoin (BTC) exchange-traded fund have faded, potentially leading to a correction in Ether (ETH) down to the $1,700 level last seen on June 16.

Recent macroeconomic events may offer some hints, including the fact that the United States’ gross domestic product grew at an annualized rate of 2% in the first quarter, Germany’s Consumer Price Index increased by 6.8% in June compared to the previous year, and China’s Caixin Global purchasing managers’ index reported activity expansion.

As a result, strong economic indicators have raised investors’ expectations of further tightening measures from the U.S. Federal Reserve.

Fed Chair Jerome Powell’s suggestion of two more interest rate hikes in 2023, coupled with the rising cost of capital and higher returns on fixed-income investments, have dampened interest in cryptocurrencies.

On the regulatory front, the most pressing news and events included:

  • June 28: European Union lawmakers proceeded with the controversial Data Act, which imposes requirements for smart contracts, including kill switches that allow them to be safely terminated, as well as rules for providing shareable data.
  • July 4: Binance Australia had its corporate offices searched by local authorities as part of an ongoing investigation into its derivatives business, whose license was revoked in April 2023.

TVL nears three-year lows as network demand falls

The Ethereum network is likely facing its own challenges, particularly after co-founder Vitalik Buterin stated on June 29 that he does not stake all of his Ether due to the complexities associated with multisignature wallets.

The total value locked (TVL), which measures the deposits locked in Ethereum’s smart contracts, reached its lowest level since August 2020. The indicator declined by 3.1% to 13.7 million Ether in the 30 days leading up to July 4, according to DefiLlama.

A lower TVL means that either investors are losing interest in the network’s smart contract usage or they have moved to layer-2 alternatives in search of lower transaction fees. Either way, the potential demand for the Ethereum network is negatively affected, which is seen as bearish.

ETH price gains fueled by leveraged longs

Examining the positions of professional traders in ETH derivatives is crucial for determining the likelihood of Ether’s price surpassing the $1,970 resistance level.

There may be occasional methodological discrepancies between different exchanges, so readers should monitor changes rather than absolute figures.

Despite Ether trading within a narrow range of $1,815 to $1,975 since June 22, professional traders have increased their leveraged long positions in futures, as indicated by the long-to-short ratio.

At crypto exchange Binance, the long-to-short ratio sharply increased from 1.14 on June 20 to 1.30 on July 4. Similarly, at OKX, the long-to-short ratio increased from 0.76 on June 20 to a peak of 2.25 on July 4, favoring leveraged longs.

To exclude external factors that may have solely impacted Ether futures, one should analyze the ETH options markets. The 25% delta skew indicator compares similar call (buy) and put (sell) options and becomes positive when fear prevails, as the protective put option premium is higher than that of the call options.

The skew indicator will move above 8% if traders fear an Ether price crash. On the other hand, generalized excitement reflects a negative 8% skew.

As displayed above, the delta skew flirted with moderate optimism between July 3 and July 4 but was unable to sustain such a level. Presently, the negative 2% metric displays a balanced demand for call and put options.

Related: The Supreme Court could stop the SEC’s war on crypto

ETH at $1,700 might be distant, but so is $2,000

Considering these four reasons — namely, increased leverage long-to-short ratio, declining TVL, potential interest rate increases and tighter cryptocurrency regulation — ETH bears are in a better position to hold back the positive price impact coming from the Bitcoin ETF saga.

Although these factors may not be sufficient to drive ETH’s price down to $1,700, they present significant obstacles for ETH bulls. Notably, the previous attempt to break $2,000 on April 13 lasted less than a week. Therefore, in the short term, bears have better odds of successfully defending the $1,970 resistance.