• Ethereum (ETH-USD) has fallen significantly this year from a peak of $4,812 in early November, and down 21.9% year-to-date (YTD).
• Part of the reason is its Total Value Locked (TVL) has dropped 21.6% YTD, including a high correlation with the ETH-USD price.
• As a result, gas fees (Ethereum transaction fees) have fallen significantly, sowing the seeds for a rebound in Ethereum.

Ethereum has had a rough year. It has fallen 21.9% from $3,769 at the end of 2021 to $2,944 as of March 18, according to CoinMarketCap. In addition, from its peak price of $4,812 on Nov. 7, ETH-USD is still down almost 40% (-38.8%).

However, at $354 billion, Ethereum still remains the second-largest crypto right after Bitcoin (BTC-USD) in terms of market capitalization. It is still one of the strongest, most used, and most popular cryptocurrencies out there. This is mainly because of its smart contract and decentralized finance (DeFi) capabilities.

Where Things Stand With Ethereum

Recently a measure of its popularity called Total Value Locked or TVL has been on the decline. In fact, the drop in TVL correlates very strongly with the decline YTD in Ethereum’s price.

For example, DefiLlama has a chart that shows that the TVL right now with Ethereum is $116.31 billion. TVL means that there is $116 billion in smart contracts, lending pools, digital wallets (on and off exchanges), and staking contracts, tied up in ETH-USD.

TVL has fallen from $148.4 billion at the end of December 2021, representing a 21.6% decline YTD. This highly correlates with the 21.9% decline in Ethereum’s price since the end of 2021.

In other words, Ethereum’s prospects seem highly leveraged to the growth in TVL. That syncs with interest in ETH-related smart contracts, the general interest in cryptos, and the perception that Ethereum and Bitcoin are good investments.

Another recent development that has shown up with ETH-USD is a general decline in gas fees (transaction fees). For example, Y Charts shows that the average gas fee has fallen from 97.14 Gwei (one Gwei is one billionth of one Ether token) to 72.59 as of March 18. That, again, roughly represents a drop of 25% or roughly the same as the decline in Ethereum’s price and the TVL drop.

About a week ago, Cryptopotato online magazine noted that Ethereum gas fees had hit an 8-month low as interest in non-fungible tokens (NFTs) and TVL waned. In fact, the article says that they had reached a low of 20 Gwei for low-speed transaction validations. So since then, the fees have moved up considerably to 73 Gwei.

What This Means for Investors

Investors in Ethereum can think of TVL and gas fees as coincident indicators or maybe even leading indicators of value for the price action in ETH crypto. For example, if you see gas fees rising, along with an increase in TVL, you can assume that the correlation with the Ether price will be high.

In other words, to see if Ethereum is going to rise soon, look at the trends in TVL and gas prices. If they are both rising, you can bet that interest in Ethereum is rising and so will the price.

This trend could continue for the next several months once global tensions ease, especially if the Russian-Ukrainian war eventually finds some resolution.

Ethereum is considered the most widely used digital ledger used in the rapidly expanding area of decentralized finance. It is facing significant pressure from competitors such as Solana (SOL-USD), mainly because of high transaction fees. The recent decline in transaction fees at Ethereum will help its competitive position.

However, Ethereum still has strong backing, as the Financial Times recently pointed out in an interview with a co-founder of Ethereum, Joseph Lubin. He argues that Solana has a flaw in that it pays out too much to its transaction validators. He also says that Solana sacrifices security for greater efficiency, and the network has experienced multiple significant outages.

All of this points to higher popularity, efficiency, and eventual price for Ethereum within the next year. Investors should consider taking a toehold stake in the crypto before it starts moving higher again.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.