Ether Drops 13% Amid Tariff Wars, But Rebound Potential High

Ether (ETH) experienced a significant decline, falling 13% between March 8 and March 11. This drop was driven by investors shifting to short-term fixed-income and cash positions in response to global tariff wars and growing fears of an economic downturn. The market's concerns escalated further when the United States implemented retaliatory measures in response to Canada’s electricity surcharge.

Despite the recent downturn, there are several reasons why Ethereum could outperform its rivals in the coming weeks. Firstly, traders often overreact to market conditions, which increases the likelihood that Ether will rebound faster than other assets once market sentiment improves. This overreaction can create opportunities for Ether to regain its value more quickly.

Secondly, the current market conditions have led to a significant reduction in leveraged buying activity, which is now at its lowest point in five months. This reduction suggests that there is potential for increased demand from leveraged buyers, which could drive the price of Ether higher. Additionally, the current annualized premium for ETH 2-month futures is at 4.5%, which is below the expected range of 5% to 10% in neutral markets. This lower premium signals weak bullish conviction, indicating that there is room for growth as market sentiment improves.

Thirdly, Ethereum's layer-2 network has shown notable progress in network efficiency. In late 2021, the average transaction fee exceeded $50, while activity on Ethereum’s layer-2 ecosystem was 97% lower than it is today. On March 11, a token swap on Ethereum’s base layer cost $1.70, highlighting the significant improvement in network efficiency. Even if bots generate 80% of layer-2 transactions, the remaining 20% of activity on networks like Base, Arbitrum, Optimism, ZKsync, and Blast is still roughly three times higher than Ethereum’s base layer.

Ethereum has also reinforced its position as the second-most popular option for institutional investors in traditional finance, supported by $8.9 billion in spot exchange-traded funds (ETFs). Competitors such as Solana still await regulatory approval for similar ETF products, and even if they gain approval, they cannot match the first-mover advantage of the Grayscale Ethereum Trust, which began public trading on over-the-counter markets in June 2019.

Moreover, Ethereum smart contract deposits, measured by total value locked (TVL), reached their highest level since July 2022 in ETH terms on March 11, marking a 10% increase over the past two weeks. This growth has been driven by the expansion of liquid staking, lending, yield farming, and real-world asset tokenization. The network recently reclaimed its leading position in decentralized exchange volumes, reaching $20.5 billion over seven days and surpassing Solana’s $13.9 billion.

Ultimately, Ether’s trend reversal remains highly dependent on macroeconomic improvements. However, once stabilized, ETH is well-positioned to regain $2,500 as a key support level in the coming weeks. The combination of increased demand from leveraged buyers, improved network efficiency, and strong institutional support positions Ethereum favorably for a rebound.