![](https://thumbor.forbes.com/thumbor/fit-in/1200x0/filters:format(jpg)/https://specials-images.forbesimg.com/imageserve/5f6ca1a6a8c29f46b439a28c/0x0.jpg?cropX1=0&cropX2=2300&cropY1=327&cropY2=1621)
Ethereum’s latest craze includes NFTs, which have been popularized by “CryptoKitties.”
The buzz surrounding Ethereum’s burgeoning ecosystem has been well documented with year to date performance of 154% outpacing bitcoin’s 44%.
![Ethereum fell to $313 from $350 on Wednesday, but has recovered to $350.](https://specials-images.forbesimg.com/imageserve/5f6c9664267509588dd1c552/960x0.jpg?fit=scale)
https://coinmarketcap.com/currencies/ethereum/markets/
The principal driver being the boom in decentralized finance (DeFi), which has attracted hundreds of millions to these networks.
Unfortunately, as global markets have cooled off recently, so has DeFi, with the average token down 30% to 40% over the past few weeks.
However, just as the DeFi exuberance takes a pause, a new craze has taken over almost immediately, non-fungible tokens (NFTs).
![Example NFT via notorious Cryptokitties.](https://specials-images.forbesimg.com/imageserve/5f6c99e733e1fec2f1e7fc71/960x0.jpg?fit=scale)
messari.io/article/nfts-meet-defi-the-emergence-of-nft-loans
NFTs are individually unique, digital collectibles, created and secured on the blockchain. NFTs have found initial traction in gaming and rare art given their digital scarcity.
For example, Anthony “Pomp” Pompliano recently had a conversation with Jim Cramer on his podcast where Mr. Cramer notes that “his inflation handbook says buy mansions, gold, and masterpieces.” The following week, Pomp issued a newsletter to his readers stating that his next “big bet” was on digital art (NFTs).
Additionally, per Mason Nystrom of Messari, “The fuse connecting the NFT and DeFi worlds has been sparked by projects like Axie Infinity, Rarible, and MEME integrating DeFi concepts like liquidity mining and staking to build early networks.”
For example, per Nansen, an Ethereum blockchain analytics firm, Rarible’s native token, $RARI, has experienced strong growth in new addresses and holders of at least 60 days.
![Addresses and holder period are both growing.](https://specials-images.forbesimg.com/imageserve/5f6c9cfaff81161f57995905/960x0.jpg?fit=scale)
nansen.ai/
Unfortunately, the strong growth in DeFi and NFTs has been a “double-edge sword” for Ethereum, consistently clogging the network (network utilization is 97% currently), and dramatically increasing transaction costs. Heightened transaction costs and slower processing speeds may act as a barrier for new entrants into DeFi or NFTs, thus stifling new demand for Ethereum.
![Ethereum's network capacity is currently 97% used.](https://specials-images.forbesimg.com/imageserve/5f6c9e88c19b420f1a995905/960x0.jpg?fit=scale)
https://etherscan.io/chart/networkutilization
A lack of new demand entering the market for Ethereum, coupled with macro uncertainty surrounding the election appears to be dragging down price lately.
Per notable crypto analyst, Rekt Capital, “Ethereum’s Quarterly price chart suggests it could be setting itself up for significant downside. The Quarterly Candle Close is just over a week away and a close below $360 may result in a pullback to at least $290. That being said, Ethereum corrections tend to be volatile and produce downward wicks, i.e. price could overextend as low as $270.”
![Ethereum could see further downside before its next leg upward.](https://specials-images.forbesimg.com/imageserve/5f6ca09d27956c3d6a093b98/960x0.jpg?fit=scale)
https://www.rektcapital.co/
The burgeoning ecosystem being built atop Ethereum seems quite promising in the long-term, especially once ETH 2.0 solves the current capacity issues. However, in the near-term, further price weakness and volatility could be likely before the next leg upward.
Disclosure: The author owns bitcoin, ethereum, and solana.