Ethereum network upgrade and uptick in Arbitrum active users could trigger an ARB price reversal

Despite the fact that the ARB token of the Arbitrum network has experienced a steady decrease in value since its airdrop in late March, its ecosystem has seen healthy growth.

A recent Nansen report indicates that Arbitrum’s performance has been enhanced since the airdrop, with levels remaining “at a higher level” than before the airdrop. Since April 2023, the daily active users, gas fees, and transaction count have been kept at a consistently higher rate.

The disparity between the quantity of active users on Arbitrum and Optimism increased after the Arbitrum airdrop, narrowing the gap with Ethereum.

The trading volume on Arbitrum-based decentralized exchanges reflects a similar trend, indicating a clear increase in volume following the airdrop.

Nansen’s report indicates that ARB airdrop recipients only constituted a small portion of the activity on the blockchain, yet Arbitrum has managed to draw in a significantly larger number of new users since the airdrop.

Potential catalysts for ARB upside

An upcoming update to Ethereum, known as Cancun-Deneb (Dencun), scheduled for the second half of 2023, will include the implementation of EIP-4844 (proto-Danksharding), which is expected to reduce transaction fees on Arbitrum, thus enhancing the blockchain’s value proposition.

The Arbitrum Foundation recently disclosed figures from its sequencer, a component of the layer-2 fees that users pay for submitting information to Ethereum.

The foundation has chosen to allocate the proceeds from the sequencer, which amount to 3,352 Ether (ETH) or $5.4 million, to the Arbitrum DAO, and the ETH will be managed by ARB holders.

A potential source of income for the DAO (Decentralized Autonomous Organization) may generate returns for ARB holders if the community votes to direct the rewards to them. It is yet to be seen how the funds will be managed by the foundation and the DAO.

“Smart money” is holding ARB

Nansen’s data indicates that the “smart money” and funds that acquired ARB following the airdrop have yet to liquidate their holdings, which is a positive sign. On-chain analytics firms classify Ethereum addresses of high-volume and profitable traders as “smart money.”

The ARB perpetual swap contract funding rate followed the trend of the rest of the crypto market and became negative after the SEC filed lawsuits against two of the industry’s largest exchanges, Binance and Coinbase, according to CoinGlass data.

Deposits on zkSync have exceeded $110 million as its DeFi ecosystem experiences explosive growth.

Funding rates are determined by perpetual swap traders depending on the demand for shorting or longing an asset. If the demand for short positions is greater, it is considered more costly, thus those on the short side must pay those on the long side.

At present, the funding rates are close to zero, indicating that futures traders are impartial when it comes to ARB.

Since the introduction of ARB/USD in March, the pair has experienced a downward trend. The narrowing of the channel suggests the emergence of a descending wedge pattern, which often breaks upwards.

If ARB falls below the support line of the wedge pattern at approximately $0.90, the decline could be rapid.

On the ETH scale, ARB dropped beneath May’s low of 0.00057 ETH following the SEC’s legal actions. At the time of writing, the token was being exchanged at 0.00056 ETH.

Technically, ARB indicates the potential for a reversal of a downward trend. However, the upcoming Dencun update on Ethereum and the choices made by the Arbitrum Foundation concerning the distribution of profits from the L2 rollup will ultimately determine the direction of ARB’s price.

Categorized in:

Tagged in: