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

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

A recent Nansen report suggests that Arbitrum’s activity has improved following the airdrop, stabilizing at “high levels” prior to the airdrop. The number of daily active users, gas charges and transactions have remained at a consistently high level since April 2023.

The gap between the number of active users on Arbitrum and Optimism widens after Arbitrum airdrop kicks off on Ethereum.

Trading volume on arbitrum-based decentralized exchanges paints a similar picture, showing a clear increase in volume following the airdrop.

Furthermore, the Nansen report shows that ARB airdrop recipients only account for about 5% of activity on the blockchain and that Arbitrum attracted a significant number of new users following the airdrop.

Potential Catalyst Upside for ARBs

Furthermore, an upcoming update on Ethereum in the second half of 2023, dubbed as Cancun-Deneb (Denkun), will include EIP-4844 (proto-danksharding), enhancing the value proposition of the blockchain, Will reduce transaction fees on Arbitrum.

Additionally, the Arbitrum Foundation recently disclosed the accumulated data from its sequencer, which is a portion of the layer-2 fees paid by users for posting data on Ethereum.

The foundation has decided to give a total of 3,352 ether (ETH), or $5.4 million, of Sequencer to the Arbitrum DAO, and the ETH will be managed by ARB holders.

overall:

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

how exciting?

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

A revenue source for The DAO – a decentralized autonomous organization – could potentially create a yield for ARB holders if the community votes to direct rewards to holders. It remains to be seen how the funds will be managed by the Foundation and the DAO.

The “smart money” ARB is holding

Data from Nansen shows that the “smart money” and funds that deposited ARBs after the airdrop are still not sold, which is encouraging. The on-chain analytics firm tags Ethereum addresses of high volume and profitable traders as “smart money”.

Funding rates 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, according to CoinGlass data.

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Funding rates are paid by perpetual swap traders for shorting or longing depending on the demand for an asset. If the short order is in high demand, it is considered more expensive, so traders on the short side pay for the long side.

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

The ARB/USD pair has seen a decline since the launch of the token in March. The compression of the channel indicates the possibility of a descending wedge pattern with a tendency to break to the upside.

However, if ARB breaks below the support line of the wedge pattern near $0.90, the downside could turn bullish.

On the ETH scale, ARB declined from its May low of 0.00057 ETH following the SEC lawsuit. At the time of publication, the token was trading at 0.00056 ETH.

Technically, ARB shows the probability of a reversal of a negative trend. Nevertheless, the upcoming Denkun update on Ethereum and the decisions made by the Arbitrum Foundation on where to direct the revenue from the L2 rollup will ultimately dictate the price action of ARB.