‘Adoption paradox’ in effect as Ether lags while network activity surges

Ethereum is seeing a growing divergence between the level of activity on the network and spot prices, suggesting that transactional activity alone isn’t driving demand for Ether.

Ethereum network activity has been reaching record highs, according to CryptoQuant, including active addresses, token transfers, and smart contract calls.

Total active addresses spiked to over 1.1 million in February, more than double the prior-year period, while token transfers topped a million in March, up from around 750,000 in December, according to CryptoQuant data.

Smart contract and automated protocol token transfers have also climbed to record levels, reflecting the growth of decentralized finance (DeFi), stablecoins, automated protocols and layer-2 ecosystems.

Ethereum layer-2 Lisk’s head of research, Leon Waidmann, also observed on X on Wednesday that Circle’s USDC (USDC) usage on Ethereum just hit an all-time high, according to Token Terminal.

However, despite the network activity, the price of Ether (ETH) remains down almost 60% from its peak, indicating “a clear divergence between network usage and asset performance,” said Julio Moreno, head of research at CryptoQuant, on Tuesday, calling it an “adoption paradox.”

The findings challenge previous notions that crypto network activity translates into demand for the asset that drives price increases.

ETH price dynamics driven by capital flows

Moreno added that the yearly change in Ethereum’s realized capitalization has turned negative, showing that capital is exiting from Ether.

“This aligns closely with ETH price weakness and suggests that ETH price dynamics are driven primarily by capital flows rather than network activity growth.”