Ethereum Tests Critical Support Level Amid Market Caution

Ethereum CRYPTO000ETH

The recent price action of Ethereum has served as a stark reminder of the asset's short-term sensitivity to shifting market sentiment and capital flows. Despite successful network upgrades and marginally positive inflation data, a cautious tone prevails. The key question for traders is whether the combination of declining on-chain activity and ETF outflows will continue to exert downward pressure, or if selling momentum is finally beginning to wane.

A significant headwind originates from institutional investment products. In recent days, U.S.-listed spot Ethereum ETFs have witnessed outflows exceeding $553 million. These substantial withdrawals have largely offset the positive fundamental developments from the latest network upgrade. Analysts interpret this selling as part of a broader year-end risk adjustment across portfolios.

On the macroeconomic front, the latest U.S. inflation reading of 2.7% offers some room for a less restrictive monetary policy from the Federal Reserve. However, this has not yet translated into a broad rally for risk assets, including cryptocurrencies. A potential regulatory tailwind exists: the U.S. SEC has approved the DTCC's blockchain pilot for U.S. Treasury bonds. This move to integrate traditional market infrastructure with blockchain technology is viewed by many as a long-term positive for Ethereum's potential as a settlement layer.

Technical Picture: A Precarious Position

From a chart perspective, Ethereum is trading in a vulnerable zone. The current price is approximately $2,828, hovering just above the recent weekly low. This represents a decline of roughly 15% over a seven-day period, and the asset trades nearly 40% below its 52-week high. The price is also situated decisively below the 50-day moving average, technically confirming the prevailing downtrend.

The area around $2,800 is now considered immediate and critical support. A failure to hold this level could see the price target the $2,600 to $2,620 range mentioned in earlier analyses. On the upside, the moving average near $3,000 presents the first significant resistance hurdle.

On-Chain Metrics Show Declining Engagement

Network activity metrics have softened in tandem with the price, presenting a concern for the bullish narrative. Key on-chain data for December reveals a clear downtrend:

• The count of weekly active addresses has fallen from around 440,000 at the start of the month to approximately 324,000—levels last seen in May 2025.
• Daily transaction volume has retreated to lows not observed since July.

This indicates a current hesitancy among retail participants. It is worth noting that earlier, much lower estimates of user numbers (around 170,000 addresses) proved inaccurate. Nevertheless, the persistent decline in network usage remains a weight on market sentiment.

Network Development Progress vs. Market Reaction

The core Ethereum protocol continues to advance, irrespective of short-term price movements. The Fusaka upgrade was successfully completed on December 3rd, marking the most significant update since "Pectra" in May. Its primary goals are enhanced Layer-1 scalability and reduced data costs for Layer-2 rollups, strengthening Ethereum's foundational role for applications.

However, this technical progress has yet to be reflected in market valuations. Attention is already shifting to the next major upgrade, codenamed "Glamsterdam," slated for 2026. The current weakness, therefore, appears less a function of technical shortcomings and more a reflection of transient demand and liquidity conditions.

Sentiment and Forward Outlook

The overall market mood is captured by the Crypto Fear & Greed Index, which has slipped back into "Fear" territory. In the immediate term, factors like options expiries, ETF flow dynamics, and general liquidity are dominating price action over the network's fundamental improvements.

The path for Ethereum in the coming weeks will likely be determined by two factors: the resilience of the $2,800 support zone and whether the pace of ETF outflows begins to slow. A successful stabilization could allow the efficiency gains from Fusaka and the roadmap for future upgrades to regain market focus. Conversely, a decisive break below the stated support levels would make a further retreat toward the next support band the most probable scenario.