Ether (ETH) has been under pressure since June 7, when it lost the $3,800 support level. Despite a series of positive developments, its price remained below $3,600 on June 19, showing no weekly change.

Some analysts believe that the primary reason for the bearish momentum is a lack of institutional demand for cryptocurrencies. Others attribute it to regulatory uncertainty within the Ethereum ecosystem.

Ethereum ecosystem risk persists despite regulatory clearance for ETH

Noelle Acheson, author of the ‘Crypto is Macro Now’ newsletter, expressed surprise at Ether’s lack of positive momentum following Consensys's victory over the regulator. She also questions whether other regulatory issues related to staking could be deterring investor interest.

On June 18, Ethereum ecosystem developer Consensys announced that the U.S. Securities and Exchange Commission (SEC) had concluded its investigation into whether Ethereum could be considered a security and the company’s role in ETH sales. Consensys had initiated legal action against the SEC in April after receiving a Wells notice, which warned that its MetaMask wallet might have breached securities laws.

Ether's downturn coincided with Bitcoin (BTC), the leading cryptocurrency, facing rejection near $72,000 on June 7. This occurred as investors grew concerned about the United States' fiscal health, exacerbated by high interest rates and deteriorating economic indicators such as rising wages and an increasing jobless rate. In May, U.S. average hourly earnings rose by 0.4% compared to the previous month, while the unemployment rate increased to 4.0% from 3.9% in April.

Despite potential benefits to cryptocurrencies from worsening macroeconomic conditions in the medium to long term, history has shown that investors tend to withdraw from risk assets when the risk of a recession becomes imminent. The U.S. 2-year Treasury yield fell from 4.94% on May 30 to 4.71%, indicating that investors were aggressively purchasing these fixed-income instruments.

Dan McArdle, the co-founder of Case4Bitcoin, noted that as long as the macroeconomic environment remains stable, cryptocurrency appears reasonably priced, and its long-term bullish trend should continue. However, McArdle warns that a "macro shock" or a sharp correction in the S&P 500 would negatively impact cryptocurrencies in the short to medium term. Therefore, the current lack of interest in Ether could reflect investors' heightened concerns about a potential recession.

In addition to the recent Consensys development, regulatory news for Ether has been overwhelmingly positive. SEC Chair Gary Gensler confirmed that the launch of U.S. spot Ethereum exchange-traded funds (ETFs) would occur within three months. However, Ethereum faces its own challenges, including persistently high network processing fees, which have exceeded $4 over the past week.

Recession risks and potential lack of demand for the spot Ether ETF

Despite the growth of layer-2 scaling solutions such as Optimism, Base, Arbitrum, and ZKSync, some decentralized application volume has shifted to competitors like Solana, BNB Chain, and THORChain.

Related: Bitwise amended Ethereum ETF filing says Pantera interested in $100M buy

According to DappRadar, Ethereum remains the leader in DApp volumes over the last 30 days, but it faces stiff competition. Competitors such as Solana, Aptos, Celo, and Fantom have significantly outpaced its growth. Additionally, the number of active addresses interacting with DApps on the Ethereum network has dropped by 40% in 30 days, while Solana and Aptos saw increases of 58% and 115%, respectively.

Ether’s failure to surpass $3,600, despite the imminent launch of spot ETFs and the SEC’s regulatory clarification that ETH is not a security, includes worsening macroeconomic conditions and potential uncertainties regarding additional regulatory charges for token issuers, wallet providers, and exchanges—a risk highlighted by Noelle Acheson.

Lastly, the recent four-day consecutive net outflows from the spot Bitcoin ETF raise concerns about whether Ethereum instruments will attract significant inflows as their launch approaches. Investors are worried that Grayscale’s Ethereum Trust Fund ETHE might suffer outflows when it is converted to an ETF, similar to the issues that have affected the GBTC due to its high fees.

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.