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

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While the Arbitrum governance token ARB has been in a consistent downturn since the airdrop in late March, its ecosystem shows healthy growth.

A recent Nansen report shows that Arbitrum’s activity improved after the airdrop, stabilizing “at a level higher” than before the airdrop. The daily active users, gas fees and transaction count have maintained consistently higher levels since April 2023.

The gap between the number of active users on Arbitrum and Optimism widened after the Aribtrum airdrop, closing in on Ethereum.

Daily active users of Arbitrum, Ethereum and Optimism (past 6 months). Source: Nansen

The trading volume on Arbitrum-based decentralized exchanges paints a similar picture, showing an evident rise in volume after the airdrop.

The trading volume of DEXs on Arbitrum. Source: DefiLlama

Moreover, Nansen’s report shows that ARB airdrop recipients only accounted for around 5% of the activity on the blockchain and that Arbitrum has attracted considerably more new users after the airdrop.

Potential catalysts for ARB upside

Moreover, an upcoming update on Ethereum in the second half of 2023, dubbed as Cancun-Deneb (Dencun), will include EIP-4844 (proto-Danksharding), which will reduce the transaction fees on Arbitrum, increasing the blockchain’s value proposition.

Additionally, the Arbitrum Foundation recently revealed accumulated data from its sequencer, a part of the layer-2 fees paid by users for posting the data onto Ethereum.

The foundation has decided to pass on the sequencer’s earnings, totaling 3,352 Ether (ETH), or $5.4 million, to the Arbitrum DAO, and the ETH will be managed by ARB holders.

In total:

The Arbitrum DAO has accumulated ~3,352 ETH in revenue,The Sequencer will be refunded ~5,954 ETH which is the cost for posting all data to the Ethereum network.

How exciting is that?

— Arbitrum (,) (@arbitrum) May 10, 2023

A revenue source for the DAO — a decentralized autonomous organization — can potentially create yields for ARB holders if the community votes to direct the rewards to holders. It remains to be seen how the funds will be managed by the foundation and the DAO.

“Smart money” is holding ARB

Nansen’s data shows that the “smart money” and funds that accumulated ARB after the airdrop still haven’t sold, which is encouraging. The on-chain analytics firm tags Ethereum addresses of high-volume and profitable traders as “smart money.”

Funds (purple) and smart wallets (green) are still holding ARB. Source: Nansen

The funding rate for ARB perpetual swap contracts turned negative like the rest of the crypto market after the Securities and Exchange Commission (SEC) brought lawsuits against the industry’s largest exchanges, Binance and Coinbase, per CoinGlass data.

Related: Deposits to zkSync surpass $110M as its DeFi ecosystem explodes

Funding rates are paid by perpetual swap traders for shorting or longing an asset depending on its demand. If the demand for short orders is higher, it is deemed more expensive, so traders on the short side pay longs.

Currently, the funding rates are near zero, suggesting that futures traders are neutral on ARB.

Funding rate across the perpetual swap markets. Source: CoinGlass

The ARB/USD pair has observed a downward trend since the token’s launch in March. The compression of the channel shows the possibility of a descending wedge pattern, which has a tendency to break to the upside.

However, if ARB breaks below the support line of the wedge pattern around $0.90, the move to the downside can amplify quickly.

ARB/USDT daily price chart. Source: TradingView

On the ETH scale, ARB broke below May’s low of 0.00057 ETH after the SEC’s lawsuits. At the time of publication, the token was trading at 0.00056 ETH.

ARB/ETH 4-hour price chart. Source: GeckoTerminal

Technically, ARB shows the possibility of a negative trend reversal. Nevertheless, the upcoming Dencun update on Ethereum and decisions taken by the Arbitrum Foundation in directing revenue from the L2 rollup will ultimately dictate ARB’s price action.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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