In mid-July, Ethereum (ETH 0.26%) briefly broke through the $2,000 price level and crypto investors began to anticipate another bull market rally heading into 2024. But since then, Ethereum seems to have run out of momentum, and is now trading below $1,600. Down 20% from its summer highs, Ethereum is now firmly in "dip" territory.

While a "buy the dip" trading strategy has worked in the past for long-term crypto investors, there are a number of worrisome signs that suggest it might be different this time around. If you are thinking about investing in Ethereum, there are three key factors to consider.

Ethereum network activity

Of primary concern is that overall activity on the Ethereum blockchain network appears to be declining. This wasn't supposed to happen, not after The Merge. The conventional thinking back in 2022 was that The Merge would set the stage for the next big round of growth at Ethereum. Thus, any slowdown in growth this year is a potential reason for concern.

There are a number of ways to measure this slowdown in network activity. For example, weekly trading volume for non-fungible tokens (NFTs) is now at a two-year low. This is important because NFTs have always been one of the biggest growth drivers for Ethereum. If the NFT market continues to remain on life support, then that dramatically scales back Ethereum's future growth potential.

Moreover, investors are continuing to monitor gas fees (i.e., transaction fees) on the Ethereum network. These fees are at their lowest levels since 2020, and have been on a downward trajectory since the start of the year. Generally speaking, low gas fees signal low network activity, and there has been much hand-wringing about how much less demand there has been by all the biggest users of the Ethereum blockchain.

Divergence in Bitcoin and Ethereum prices

Another point of concern is that the prices of Bitcoin (BTC 0.39%) and Ethereum appear to be moving in different directions. Over the past 30 days, for example, Bitcoin is up more than 7% while Ethereum is down by more than 3%.

The price divergence over the past 30 days might not seem like a big deal until you consider the long-term trend in Ethereum and Bitcoin prices. This TradingView chart, for example, compares the price of Ethereum to the price of Bitcoin over the past 12 months. The downward sloping nature of the chart suggests that, on a relative basis, Ethereum is losing value versus Bitcoin.

Source: TradingView

Given how closely Ethereum has tracked Bitcoin in the past, this is worth monitoring. It might signal that the "new" Ethereum (i.e., the Ethereum that emerged after The Merge) is going to trade differently than the "old" Ethereum.

New Ethereum ETFs

Finally, there's the matter of the brand-new Ethereum exchange-traded funds (ETFs), which have received a lukewarm reception from institutional investors. This was surprising, to say the least. After all, the conventional wisdom was that the launch of new ETFs for Ethereum would lead to a price rally. This summer, even mention of a new spot Bitcoin ETF immediately led to a mini-rally in Bitcoin. So why wouldn't Ethereum see a similar lift?

So, in early October, six (six!) new Ethereum ETFs launched. However, as CNBC has detailed, all of them immediately met with losses of 5% or more. Of even greater concern is that nobody seemed to want to buy these ETFs. The total combined inflow into all six ETFs was just $1.92 million. To say that this underperformed expectations is a huge understatement.

What to do about Ethereum?

The three factors detailed above are potential red flags for anyone considering an investment in Ethereum right now. Over the short run, these factors certainly have the potential to cap Ethereum's potential upside.

The big question, though, is what impact they will have over the medium to long term. For now, I remain cautiously optimistic about Ethereum, but I'm already starting to rethink my long-term growth forecasts for the world's second-largest cryptocurrency.