Ethereum: Buy the Dip?

Almost exactly one year since it pulled off The Merge, Ethereum (CRYPTO: ETH) seems to be falling out of favor with crypto investors. After a fast start to the year, Ethereum is now down 10% over the past 30 days and more than 20% from its mid-April highs. Moreover, some investors are warning that Ethereum could have further to fall before it recovers to the $2,000 price level.

For investors thinking about "buying the dip" on Ethereum, there are two major points of concern to consider. Let's take a closer look.

Drop in user activity and transaction volume

First and most importantly, there has been a significant decline in transaction volume and overall activity taking place directly on the Ethereum blockchain. For example, transaction volume recently hit a nine-month low, while daily transaction fees recently hit an eight-month low. The growing consensus seems to be that users have lost interest in the Ethereum blockchain, and that they may be moving elsewhere.

If true, that could be worrisome, because it could mean a long-term decline in areas such as non-fungible tokens (NFTs), where Ethereum has historically been dominant. Using any type of valuation model, you would then need to downgrade Ethereum's future prospects, resulting in a lower long-term price target.