There’s an old saying about traditional markets that actually sounds more like a trading rule. It goes, “when the trend is negative, one can only go neutral or short”, i.e. bet on falling prices. The problem is that a rebound in relief tricks traders into believing that the prevailing negative sentiment has shifted into a buyers market.

For example, after analyzing the price chart of Ether (ETH), one could conclude that after a 41% crash, a bull run should be triggered as soon as possible. Unfortunately, this is a bit of a mistake because markets can exist in non-definition (trend) periods.

Ether price on FTX, in USD. Source: Trading View

So you could say that the chart above shows a long trading period near $2,800, for example. Given Ether’s 88% annualized volatility, moves between $2,400 and $3,200 should be considered normal.

Using technical analysis, a trader can point to lower highs forming the downtrend channel above, but should Ether bears celebrate and call $2,500 and below? This largely depends on the position of retail traders, as well as the on-chain metrics of the Ethereum network.

A few things to consider are whether the 63% drop in network transaction fees to the current $17 reflects a decrease in the use of decentralized applications (DApps), or are users benefiting from engagement with other solutions? layer 2 scaling?

Ether futures premium is missing

To understand how confident traders are about Ether’s price recovery, it is worth analyzing perpetual futures data. It is the preferred derivative of retail traders because exchanges offer up to 50x leverage and its price tends to follow regular spot markets perfectly.

In any futures trading, longs (buyers) and shorts (sellers) are matched at all times, but their use of leverage may vary. Therefore, the exchanges will charge a funding rate to the party that has deposited the least margin, and this commission is paid to the opposing party.

Ether perpetual futures 8-hour funding rate. Source: Coinglass

This data tells us if retail traders are getting excited, pushing the funding rate above 0.05%, which equates to 1% per week. Notice how the past two months have shown a slightly negative funding rate, reflecting neutral to bearish sentiment. Currently, there is no indication that retail traders are confident enough to buy Ether using leverage.

To exclude externalities that could have influenced the data on derivatives, it is necessary to analyze the on-chain data of the Ethereum network. For example, monitoring network usage tells us whether real-world use cases support the demand for Ether tokens.

On-chain measurements raise concerns

Measuring the monetary value of Ether transacted on the network provides a quick and reliable indicator of effective usage. Of course, this metric could be masked by growing adoption in Layer 2 solutions, but it works as a starting point.

7-day average of native ETH token transfers per day, USD. Source: CoinMetrics

The current daily transaction average of $6.7 billion represents a 6% increase from the previous 30 days, but is a far cry from the $9 billion seen at the end of 2021. Data shows that Ether token transactions do not show no signs of growth, at least on the primary layer.

It’s worth moving on to decentralized application usage metrics, but avoid focusing exclusively on total value locked (TVL) as this metric is heavily focused on lending platforms and decentralized exchanges (DEX), so assess the number of active addresses provides a broader view.

Ethereum network DApps activity over 30 days. Source: DappRadar

On average, Ethereum DApps saw a monthly decline of 10% on active addresses. In a nutshell, the data is disappointing because the smart contract network was specifically designed to host decentralized applications such as non-fungible token markets (NFTs) and decentralized finance, DeFi.

Unless there is decent growth in Ether transactions and usage of DApps, the bears will likely have the upper hand. As for the neutral funding rate of retail traders, it should not be taken as a bearish sign, as these investors usually enter leveraged long positions after a sharp rise in prices.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research before making a decision.