Although we are less than a month into 2021, the year is already proving to be a historic one for cryptocurrency.
After Bitcoin reached a new all-time high of over $ 40K earlier this year, ETH has made waves with a new peak always its own. Earlier this week, the ETH price reached roughly $ 1450; at the time of press, the price had dropped to $ 1,243.43.
However, while the ETH bull run may be over (for now), many analysts seem to believe this is just the beginning for ETH and the Ethereum network. What always caused the push to the new highest, and what’s next?
The ‘Run’ effect of Bitcoin
Simon Peters, Market Analyst on social trading platform, eToro, told Finance Magnates that ETH’s recent meteoric rise “is like pushing bitcoin to its previous high at the end of 2020.”
And indeed, much of ETH’s recent push to a new climax has always seemed to have been partly caused by runoff from Bitcoin’s recent push past $ 40K.
Ben Perrin, Host of the crypto-themed BTC Series Bout sessions, told Finance Magnates that this pattern can be observed when BTC has moved up in the past: “over the last few bull runs, Bitcoin tends to take the lead , then some of that money filters out to other cryptocurrencies. “
Although the exact reasons for this phenomenon are not known, Perrin explained that the causes for moving capital to ETH and other altcoins are likely to be psychological.
“Individuals who have bought Bitcoin and have not fully understood what sets it apart in terms of devolution, censorship resistance, immobility or its other merits decide to take away some of their paper earnings and speculate on coins others, ”he said.
In addition, “individuals who have seen Bitcoin’s meteoric rise may suffer from ‘sticker shock’, believing that BTC is too expensive, and thus piling money into smaller, less liquid coins in hopes of holding similar or larger returns. “
On average, Ethereum Now Processes More Transactions than Bitcoin per Day
But, of course, it’s not just about Bitcoin.
Brian Norton, CEO of MyEtherWallet, pointed out that part of Ethereum’s rise can be attributed to the simple fact that the network is seeing higher usage rates. And indeed, ETH seems to have recently been boosted by the ‘network effect’, which describes what happens when a product or service grows in value as more people use it.
“The fact that more Ethereum processes more transactions per day than bitcoin and for some time is a good indicator of the network’s effects at play,” explained Norton.
Indeed, Ryan Watkins, Senior Research Analyst at cryptic analytics firm Messari, recently tweeted that “Ethereum’s daily transaction volume is going parabolic.”
“It now settles $ 12 billion in transactions every day – $ 3 billion more than Bitcoin,” he wrote.
Ethereum’s daily transaction volume goes parabolic.
It now settles $ 12 billion in daily transactions – $ 3 billion more than Bitcoin.
– Ryan Watkins (@RyanWatkins_) January 19, 2021
Network Impact Multiplication Growth
What causes the boost in transactional activity on the ETH network?
“What I’m watching is developer activity on Ethereum, as it’s an indicator that new and better use cases are coming that will increase demand for the native asset,” Norton told Finance Magnates. “Ethereum has over five times the number of active developers like bitcoin, and adds developers at a faster clip every day.”
In other words, Ethereum seems to be growing because it is increasingly used as a platform for developing decentralized applications. This is a positive sign for the network, which has struggled with scalability issues as more traffic enters the network.
Peters told Finance Magnates: “while Ethereum may fulfill a currency role, it is primarily a blockchain platform, where developers can build decentralized applications (DApps) running on the entire network rather than a group of servers managed by a single authority . or an organization. ”
For example, “if DApp was an App that can be downloaded from the App Store, it would be run by its users rather than managed by a central developer.”
Peters explained that because Ethereum is intended to act as the backbone of the DApp ecosystem, the power of network impact could be especially important for the future of ETH.
“As a result, the benefits of the Ethereum platform, and therefore the Ethereum token, are vast,” he explained. “It runs a wide range of services, such as decentralized streaming applications, web browsers, video games, shared power computer services and digital art stores. It is also home to many DeFi (Devolved Funding) applications. “
CopiTrade FBS Launches New Card Scanning Feature! Go to article >>
“These many uses have contributed to Ethereum’s price rise – as more DApps are built on the Ethereum blockchain its utility is increasing.”
Ethereum Progress towards Scalability and Test-of-Work
Peters explained that while scalability remains a barrier to Ethereum growth, the organization that has helped steer the Ethereum network toward a solution has met some important technological milestones in the recent past.
“The Ethereum Foundation, the not-for-profit organization overseeing the development of Ethereum, has made positive steps to upgrade the platform to a more secure, decentralized and efficient network, called Ethereum 2..0, which will use test-stake . a consensus mechanism, ”he explained.
“Proof-of-stake allows users to ‘participate’ their Ethereum, locking it away in the network for an extended period of time,” he said. “This makes network operations more decentralized against, say, a proof-of-work blockchain, because the network is not dependent on huge mining operations or mining pits.”
“It also improves safety; if a bad actor ‘attacked’ the network he would have to contribute tickets to become a participant or validator in the first place, and so they would have a financial impact on themselves, ”explains Peters.
In addition, the Proof-of-Stake model promotes long-term price stability for ETH tokens: “a large amount of stacked Ethereum indicates the confidence being placed in the new Ethereum 2.0 network, ”Said Peters. “Currently, about $ 3,738 million of Ethereum is stacked.”
“Ethereum Growth Has a Direct Impact on Its Ecosystem Ticket Price.”
And, naturally, as the Ethereum network continues to grow, as does the number of DeCi ERC20 tokens, many of which have been outperforming ETH in terms of earnings.
“The number of users of DeFi-protocols is growing exponentially,” Konstantin Boyko-Romanovsky, CEO and Founder of Allnodes, told Finance Magnates. “The number has reached 1.25 million. The growing popularity of DeFi’s tools and applications is built on Ethereum’s smart contract, and holds new and lucrative economic opportunities on a global scale. ”
How will an ETH push over $ 1,400 affect tickets in the DeFi market? “Ethereum’s growth is having a direct impact on the ticket price of its ecosystem,” Boyko-Romanovsky told Finance Magnates.
This is “partly due to the trade on decentralized exchanges such as Uniswap to pair with Ethereum and, in part, due to Ethereum’s growth.”
“It is very likely that merchants will Rotate their Ethereum Funds into ERC-20 Tokens Once Ethereum Commences Consolidation and Flat Out.”
Matthew Goeckel, Chief Executive of LunaVulcan Cryptocurrency Signaling Service, also told Finance Magnates “it is very likely that ERC-20 tokens will start to move higher if Ethereum continues to make higher peaks.”
“As with how Ethereum and Bitcoin interact during major changes, Ethereum and ERC-20 tokens, many of which include DeFi, tend to lag behind,” he said. “There is a high probability that traders will rotate their Ethereum funds into ERC-20 tokens once Ethereum begins to consolidate and level.”
However, while DeFi is booming right now, the growth of space could lead to some negative coverage down the road.
“The DeFi ecosystem feels very reminiscent of the evil of ICO in 2017,” Perrin told Finance Magnates.
“Although the idea of ’devolved funding’ is noble, the majority of these projects are fully centralized with identifiable leads, kill switches, and from a regulatory perspective – people to tackle,” he said. “If I dare to speculate, we will see a new round of fines from the US Securities and Exchange Commission (SEC) a few years after DeFi’s mania made its rounds.”
Bitcoin Next Movement could be critical for ETH and Other Altcoins
However, while Ethereum’s growth and the DeFi ecosystem may be closely linked, Ulrik Lykke, Co-founder of cryptocurrency hedge fund ARK36, told Finance Magnates that Bitcoin plays an important role in DeFi’s markets.
“The main correlation between Bitcoin, ETH, and other altcoins is that altcoins do not move unless Bitcoin sets a direction for the entire crypto market,” Lykke said. “When Bitcoin moves fast in either direction, altcoins usually follow the same thing. The best thing that can happen to altcoins when it comes to price development is when the Bitcoin market moves sideways. ”
Thus, the future of Bitcoin could play a significant role in the future of ETH and the rest of the DeFi world.
But, where is Bitcoin headed? After pushing past $ 40K earlier this year, the price of BTC seems to have flattened around the $ 34-36K range. While this is nothing to smell, some analysts are
“During the 2013 bull run, Bitcoin saw a 100-fold return,” said Perrin. “The 2017 bull run was a 20-fold return.”
If the pattern repeats itself, meaning “this bull run is a 5X return,” Perrin explained “this puts $ 100,000 BTC well within reach. It would not be rural to see multiples of that if history repeated itself. ”
“The fact that institutions have started buying and withdrawing Bitcoin from exchange liquidity seems to indicate that we could see a steeper spiral than 2017 once supply dries up and retail fear of losing out (FOMO) really kicks in. ”
When measured at BTC, “Ethereum Holds Down A Remarkable 74% Of Its Previous High”
However, moving forward, Perrin believes that “it is very important to zoom out and measure the price of ETH in Bitcoin terms instead of dollar terms.”
Measuring ETH by this metric tells a different story about the recent rise of ETH prices. “In doing so, it becomes clear that despite hitting all-time highs in dollars, Ethereum is still down a staggering 74% from its previous high of 0.147 BTC in mid-2017.”
“To recapture its former glory, ETH would need to reach around $ 5150,” he explained. This is more than 300% more than its current value, provided Bitcoin would not move over $ 35k. ”
“I would say this is very unlikely to happen,” said Perrin. “Like many coins before it, Ethereum will experience volatility but be downward in terms of its relationship to the value of Bitcoin over the long term.”