You'd run out of fingers counting the good things about Ethereum (ETH -0.72%). The list includes the cryptocurrency's No. 2 ranking based on market cap, its massive returns in recent years, its status as the leading blockchain for other digital tokens, and more.
However, there's at least one negative for Ethereum that has developed into a not-so-encouraging trend over the past several months. What is this trend -- and should Ethereum investors be worried?
Going in the wrong direction
First of all, I'm not referring to the price of the Ether token trending downward. That has certainly been the case. However, the prices of Bitcoin (BTC -0.44%) and most altcoins have also fallen significantly in recent months with investors shifting away from riskier assets. Actually, Ether has held up better than many other digital tokens.
But there is another negative trend that isn't as easy to dismiss. The number of daily Ethereum transactions is clearly going in the wrong direction.
The dotted line on the above chart shows the average daily transaction volume over the previous six months. This average of around 1.21 million transactions per day is lower than the 1.27 million average for the preceding six-month period.
With only a few exceptions, the daily volume has consistently been well below both averages so far this year. And the trend appears to be worsening.
A cause for concern?
Is Ethereum's negative transaction trend simply a reflection of a broader pattern for cryptocurrencies? No. Bitcoin's daily transaction volume isn't slipping so noticeably.
Perhaps surprisingly, we can't blame Ethereum's negative transaction volume trend on high gas fees. While this has certainly been a problem for the cryptocurrency, the fees have come down somewhat.
One possible explanation is that rival blockchains are gaining ground at Ethereum's expense. Several competitors have positioned themselves as superior alternatives to Ethereum, including Solana (SOL -7.02%) and Cardano (ADA -7.46%).
Before we get overly concerned about Ethereum's negative trend, though, it helps to put things in perspective. Yes, daily transaction volumes have decreased over the past six months. However, the volumes remain high compared to the past five years.
Ready to rebound
There's a good case to be made that the transaction volume on the Ethereum blockchain will soon rebound. Investors' anticipation surrounding the "Ethereum merge" has already caused the price of the Ether token to jump.
This merge refers to the merging of the Beacon chain with the Ethereum mainnet. It will switch Ethereum to a proof-of-stake mechanism that will be beneficial in several ways. In particular, investors will be able to stake their Ether tokens and earn rewards. The Ethereum network will also be much more energy-efficient.
Importantly, the merge is also a prerequisite for phase 3 of the Ethereum upgrade. This third phase will introduce shard chains to the network. As a result, Ethereum's transaction fees should be reduced dramatically and its scalability increased significantly.
If Ethereum's daily transaction volume continues to fall as it has over the past six months, investors would have a reason to be worried. But with the merge on the way this year and the next phase of the upgrade planned for 2023, it seems likely that Ethereum's negative trend will only be temporary.