From multiple aspects such as the current state of Ethereum, potential catalysts, and changes in supply and demand, a thorough but balanced analysis is conducted to provide a conservative yet systematically optimistic perspective on whether the Ethereum price is about to take off.
Since the start of this bull market, Ethereum has been quite disappointing in terms of price performance. While Bitcoin has successfully surpassed its all-time high and risen over 350% since its low point in the cycle, Ethereum has lagged behind. Its price action has been sluggish, lacking clear catalysts, and its response has been relatively weak when Bitcoin prices surge.
However, recently, it seems that we have witnessed a shift in market sentiment. Now, everyone is wondering: Is it finally time for Ethereum to shine?
In today’s discussion, we will delve into this crucial question.
But please remember, no one can predict the future. Therefore, the following content is just some thoughts and ideas, and ideas in the cryptocurrency field can change easily. As trading expert Peter Brandt perfectly expresses, “Strong views, but with a humble attitude.”
With this concept in mind, let’s delve into it.
1. The current state of the network is very promising
To thoroughly analyze the potential of Ethereum (ETH), it is necessary to analyze the current state of the Ethereum blockchain. From a macro perspective, these factors make ETH valuable and attract investors.
1) Total Value Locked (TVL)
During the previous bear market, the Total Value Locked (TVL) significantly declined, but the activity on the Ethereum blockchain has clearly restarted. Over the past year, TVL has increased by about 200%. Although there is still some room for improvement to reach the historical high level, the upward trend is evident.
Active addresses have shown strong resilience in the past two years, never dropping below 300,000 even at the lowest point of the bear market. This indicates that Ethereum has surpassed the initial speculative stage and has become a mature blockchain that has stood the test of time.
2) Value flow
Value flow, which measures the income of holders and stakers, has also grown over the past rolling year.
3) Core developers
Core developers are an important indicator because developers ultimately build the future of the blockchain. With over 440 full-time developers, Ethereum ranks high in terms of development activity, and this number is still on an upward trend, indicating that Ethereum is still very attractive to developers.
2. Some catalysts
In addition to healthy growth in on-chain metrics, Ethereum also has many upcoming catalysts. Here is a list of some important catalysts:
1) Future launch of spot ETFs
Undoubtedly, this is one of the most important catalysts for Ethereum. The unexpected approval of an Ethereum ETF reinforces the value proposition of cryptocurrencies as an established asset class and will create a new wave of demand for Ethereum. Given the success of spot Bitcoin ETFs, we have every reason to be excited.
Although it is difficult to estimate the potential amount of funds flowing into Ethereum ETFs accurately, we can derive a range of expected values based on predictions from various experts. This provides different potential scenarios for net inflows in the first year, ranging from $1.39 billion to $6.93 billion.
2) Next, estimate the impact of potential fund inflows on the price of Ethereum
Similarly, there is no simple way to do this, but one option is to make some assumptions based on the recent case of spot Bitcoin ETFs and adjust for Ethereum for the following reasons:
The circulating market capitalization of Bitcoin is currently about 3.15 times that of Ethereum. Approximately 27% of Ethereum is staked, which means there is less circulating supply available for trading, and there may be more explosive price action. Since the merge, the overall supply of Ethereum has been deflationary (-0.184%).
Therefore, a reasonable assumption is that Ethereum is four times more responsive than Bitcoin, meaning that for the same amount of fund inflows, the price of Ethereum will fluctuate four times more than Bitcoin.
Based on all this, we can make different estimates about the price performance of Ethereum by the end of 2024.
3. Regulatory clarity
In addition to potential new sources of demand, the approval of spot ETFs also brings much-needed clarity to the status of Ethereum (a commodity). We all know that the market generally prefers clear rules, so the more regulatory issues surrounding cryptocurrencies are resolved, the better.
1) The London hard fork
This recent upgrade is very important for Ethereum. It brings several technological improvements that consolidate Ethereum’s infrastructure, but one of the main features is a significant reduction in transaction fees on layer two networks through enhanced data availability. This is a key move to establish Ethereum as a scalable settlement layer.
2) US presidential election
Cryptocurrencies have become an important topic in the upcoming election. On the one hand, the incumbent presidential candidate Donald Trump has expressed clear support for cryptocurrencies. If elected, this could be a positive catalyst for cryptocurrency adoption and beneficial for Ethereum. On the other hand, the Biden administration’s stance on this issue is not very clear but has shown some signs of relaxation. Overall, the outlook is biased towards being bullish.
4. Limited Ethereum supply
Ultimately, supply and demand are the only two variables that affect price. The situation we are facing now is that, in addition to the various potential incremental demands explained earlier, the supply of Ethereum is also limited. This can be evidenced by the deflationary supply of Ethereum since the merge.
In addition, the proportion of staked Ethereum has reached its historical high and continues to grow. This means that there is less supply available for purchase and trading on exchanges, which also means that the market needs less demand to drive price movements, thus there is more potential for explosive price action.
5. Price action
In addition to the various catalysts mentioned above, the current situation of Ethereum is also very interesting.
Looking back, we can observe that after bottoming out in June 2022, Ethereum consolidated in a range for nearly a year and a half before breaking out into the first wave of the bull market. Now, Ethereum has formed a consolidation pattern near the previous all-time high, which has lasted for over four months. Currently, we are at some key resistance levels, and there is maximum fear on the timeline. This may provide a good buying opportunity for the medium to long term perspective.
The current ETH/BTC chart is also approaching a key turning point. In the long-term downtrend, BTC has been dominant, but ETH/BTC has recently rebounded from multi-year lows and has shown strong momentum. If this momentum can be maintained and ETH/BTC breaks out of the downtrend channel, we can expect Ethereum to attract a lot of market attention.
Last but not least, it seems that now is the time to start the Memecoin season. So far, this bull market has been mainly driven by Bitcoin, with only a few exceptions. Currently, the performance of Memecoins is close to historical lows compared to Bitcoin. However, we expect this trend to reverse at some point as investors shift their attention from Bitcoin to Memecoins. This potential market rotation aligns with our bullish preference for Ethereum.
6. Negative impacts
Like everything in life, it is important to maintain a critical eye. Therefore, when analyzing the global prospects of Ethereum, it is also important to be aware of the potential drawbacks that may have a negative impact on Ethereum:
Global market performance: Ethereum is very sensitive to overall market sentiment. If the overall trend of the cryptocurrency market is bearish, Ethereum is unlikely to perform well. Although this is not the scenario we expect, it is still worth noting.
Expectations for ETFs: Negative surprises in ETFs, such as poor net inflows and lack of interest, may have a negative impact on Ethereum in the short term.
Difficulties for the traditional financial sector to understand Ethereum compared to Bitcoin: When spot Bitcoin ETFs are launched, Bitcoin is promoted as digital gold, and the traditional financial sector easily understands this narrative. However, the situation is different for Ethereum, and there is no clear consensus on its value proposition. Some people see Ethereum as a global computer, while others see it as a Web3 app store or a decentralized financial settlement layer, and so on. The confusion about what Ethereum really is may make it more difficult for the traditional financial sector to allocate Ethereum in its portfolio.
Comparison between Ethereum and next-generation blockchains: Ethereum has been widely criticized for its slow speed and high costs, especially compared to newer blockchains. In this regard, there are two perspectives. On the one hand, some people believe that this will lead to the slow decline of Ethereum, while others believe that it is not a problem because it positions Ethereum as a settlement layer to build and create scalable infrastructure on other levels. Regardless of which side of the debate you are on, it is important to maintain an open mind.
7. Conclusion
In the early stages of this bull market, Ethereum initially lagged behind, but it is now in an interesting period.
The current state of its blockchain is promising and solidifies its development as a mature L1 blockchain that has stood the test of time. Additionally, Ethereum has several bullish catalysts in terms of demand and supply, and the current price action aligns with these factors.
However, as always, things are rarely black and white, so it is crucial to maintain awareness of potential drawbacks that may have a negative impact on Ethereum.
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Author: Plain-language Blockchain This article is the opinion of a PANews columnist and does not represent the position of PANews, nor does it assume any legal responsibility. The article and opinions do not constitute investment advice. Image source: Plain-language Blockchain If there is any infringement, please contact the author to delete it.
