QNTUSD Quant

Ether’s (ETH) price printed a bear flag on the daily chart, a technical chart formation associated with strong downward momentum. Could this bearish setup and decreasing transaction fees signal the start of the second leg of ETH’s drop toward $1,200?

Ethereum’s network activity slumps

The market drawdown, fueled by US President Donald Trump’s tariff threats, saw Ether’s price drop by nearly 50% from a high of $3,432 on Jan. 31 to a 16-month low of $1,750 on March 11.

While ETH has rebounded 18% since, it failed to produce a decisive break above $2,000 for a second time in less than 10 days.

This weakness is reflected in onchain activity, with Ethereum’s daily transaction count dropping to levels last seen in October 2024, before Donald Trump’s presidential election victory.

Ethereum daily transaction count. Source: CryptoQuant

Ethereum's average transaction fees also plummeted, reaching an all-time low of 0.00025 ETH ($0.46) on March 24. 

Ethereum: Fee per transaction. Source: Source: CryptoQuant

Low transaction count and fees suggest less demand for block space —whether for DeFi, NFTs or other DApps. It suggests lower network activity, often correlating with diminished interest or market confidence.

Historically, Ether’s price has correlated with periods of high network activity. For example, during the 2021 DeFi boom, fees spiked to as high as 0.015 ETH due to high demand. 

Conversely, lower fees require less ETH, which puts downward pressure on price.

ETH supply inflation returns

Other key factors weighing down Ether’s performance are its declining burn rate and rising supply.  

With transaction fees declining, the daily ETH burn rate has plunged to all-time lows, resulting in an inflationary trend. 

According to data from Ultrasound.money, the projected ETH burn rate has declined to 25,000 ETH/year, and its supply growth has risen to an annual rate of 0.76%, bringing the issuance rate to 945,000 ETH per year.

ETH burn rate. Source: Ultrasound.money

As a result, Ethereum’s supply has steadily increased since April 2024, reversing the deflationary period ushered in by the switch to proof-of-stake (the Merge) in September 2022. Ethereum’s total supply has now surpassed pre-Merge levels, as shown in the chart below.

Ethereum supply reclaims pre-Merge levels. Source: Ultrasound.money

The Merge eliminated Ethereum’s mining-based issuance, which previously had a high supply inflation rate. Ethereum also implemented the London hard fork in August 2021, which introduced a mechanism that burns a portion of transaction fees. 

Related: Ethereum down 57% from its all-time high, but it’s still worth more than Toyota

When network activity is low, the amount of ETH burned is lower than newly issued ETH, making the asset inflationary.

Ether’s bear flag targets $1,230

The ETH/USD pair is positioned to resume its prevailing bearish momentum despite the recovery from recent lows, as the chart shows a classic bearish pattern in the making.

Ether’s price action over the past 30 days has led to the formation of a bear flag pattern on the daily chart, as shown in the figure below. A daily candlestick close below the flag’s lower boundary at $2,000 would signal the start of a massive breakdown.

The target is set by the flagpole’s height, which comes to about $1,230, an approximately 40% drop from the current price.

ETH/USD daily chart featuring bear flag pattern. Source: Cointelegraph/TradingView

Despite these risks, some traders remain optimistic about Ether’s upside potential, with analyst Jelle saying that the price is bouncing and trying to get back above the key support level at $2,200.

If this happens, “we’ll have a monster deviation on our hands,” Jelle added.

Fellow analyst Crypto Ceaser said that Ethereum is “heavily undervalued” and is bottoming out at current levels.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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