Breaking new highs of all time, the recent Ether (ETH) price action has taken over the crypto market and heralded the official start of the alt season. Several analysts predict that Ether will exceed its previous high of 2,130 US dollars and continue to surpass Bitcoin in the foreseeable future.
If price predictions are taken into account, Ethereum is undoubtedly at the forefront of crypto, as it is home to leading decentralized finance and projects with insurmountable tokens. However, this move comes at a time when the network is at a major intersection.
Although many first-tier projects have been labeled “Ethereum killers” over the years, Ethereum is only now facing real competition, largely stemming from scalability and congestion issues. If no solution manages to expand the network effectively, Ethereum may soon start losing ground to rival smart contract platforms.
Still, Ether is the undeniable king of altcoin, second only to Bitcoin (BTC) by market capitalization. So what factors increase the price of ETH and does shaping a competitive environment pose a real threat to Ethereum’s dominance?
NFTs go viral
There is a substance behind the hyper, because the volumes of sales and auctions of NFT are increasing, as well as the use cases that are being applied, especially in the gaming industry and the art world. However, digital artists are not the only ones capitalizing on the trend and exploring technology.
From celebrities like Logan Paul and Snoop Dogg to big sports forces like Formula 1 and the NBA – and now even film studios like Warner Bros. – all sorts of people and companies use NFTs as a way to promote and create alternative revenue streams.
Asked how NFTs affect the Ethereum ecosystem and the price of ether, Suz Lee, chief marketing officer of Blind Boxes, NFT’s digital art platform, told Cointelegraph: “NFTs catalyze a major boost in consumer sectors such as the arts. and entertainment, professional sports, fashion, games and cars. She added, “Art collectors pay a buyer’s premium at ETH at Christie’s for acquiring tokenized works.”
NFTs are not only unique – they offer content creators verifiable ownership of their work and a fairer share of profits by excluding intermediaries. But despite their strong potential to disrupt various industries, NFTs are probably not the main driving force behind Ether’s recent move. Unknown to many in the crypto community, the prices of NFT collectibles have actually suffered a silent decline.
Fed, interest and DeFi
Although the NFT craze seems to be slowing down, DeFi, on the contrary, is breaking records again. Due to the jump in Ether prices, the total value locked in the DeFi protocols now stands at over $ 61 billion. Significant gains are also noticeable in the number of transactions and in the valuation of DeFi tokens.
Just as Bitcoin serves as an entrance for institutional investors to enter the crypto market, Ether gives those same investors the opportunity to experiment with DeFi. Multiple firms and venture capital groups, such as the DeFi Alliance (formally the Chicago DeFi Alliance), have already made bold investments in the DeFi industry.
Only an increase in the number of institutional investors merging into DeFi is expected, helping to bring in liquidity, reduce volatility and increase credibility in the industry. Many DeFi projects are already developing solutions for institutional investors, offering risk management tools and other services at the institutional level – similar to traditional finance – so that these companies can protect their positions and minimize risk.
Justin Wright, chief operating and chief financial officer of investment platform Yield App, told Cointelegraph: “The days of real cash back are long gone,” especially given the recent announcement by the United States Federal Reserve that it will not raise interest rates. He further added:
“Interest rates in major banks are now very close to zero. This means that when you take inflation into account if you save in traditional foreign currency assets or cash at a brick and mortar bank, you lose money. “
Wright believes that the only place where significant real returns can be earned on dollar-bound assets is decentralized financing, which is predominantly located on the Ethereum blockchain. In DeFi, users of limited resources and experience can earn double-digit returns on the USD Coin (USDC), Tether (USDT) and other stablecoins that are supported and pegged to the US dollar and as such do not suffer from the instability of many major cryptocurrencies.
In addition, DeFi users can earn rewards in the platform’s home currency, allowing those who save in stable coins to be exposed to some areas of DeFi with higher growth without risking capital. This makes DeFi extremely attractive to savers and alternative investors who have been hungry for interest for more than a decade.
Interoperability is key
Blockchains focused on interoperability like Polkadot and Cosmos are becoming increasingly vital to the crypto ecosystem. Together with two-layer solutions, they can provide relief to the extremely clogged Ethereum network. But these solutions, at least for now, seem to offer a wound bandage, instead of solving the problem.
On the other hand, the upcoming Ethereum 2.0 upgrade has the potential to effectively scale the network and bring about a more decentralized application and DeFi adoption. However, only phase 0 was launched, and the upgrade faced so many delays in the past that it became a meme.
The Ethereum network has reached a state of exclusivity. It seems to have become accessible only to whales and wealthy investors, appreciating regular users. In order to execute a simple transaction or implement a smart contract, users have to pay outrageously high fees.
This led to a large proportion of crypto developers and users switching to other blockchains, and Binance Smart Chain emerged as a prominent competitor to Ethereum. Various decentralized exchanges, such as SushiSwap, now also deploy contracts on BSC and other networks as a way to circumvent high fees and offer traders a more affordable service.
Although many projects are exploring alternatives and some predictions suggest that Ethereum could lose much of its NFT market dominance on the BSC, it seems that the effect of the Ethereum network is still too strong. Projects will not soon move completely away from the Ethereum blockchain, as it still has the most activity from developers and users.
Maximalists believe the Ethereum blockchain will be the only smart contract platform the world needs. However, the popularity of interoperability solutions illustrates just the opposite, suggesting that it is increasingly likely that we will see a multi-chain future in which different linked blockchains can be used alternately.
After Tesla’s purchase of $ 1.5 billion in Bitcoin, which turned a lot of heads in the crypto community, it should come as no surprise that more and more companies want to diversify and take long positions on Ether. According to a Coinbase report, institutional investors now recognize Ether as a potential storehouse of value, similar to Bitcoin.
Although crypto seems to have only recently been cemented as an institutional asset class, it is true that many Fortune 500 companies had already invested in Ether nearly a year ago. According to research, several Ethereum wallet addresses belong to large corporations such as JPMorgan Chase, IBM, Microsoft, Amazon and Walmart.
It is entirely possible that large institutional investors already own Ether, but have not yet published it. Tesla did just that, announcing only a Bitcoin investment about a month after the move. As Grayscale continues to grow its confidence in Ether, and large corporations continue to be supplied with Bitcoin and Ether, it is clear that institutional money is one of the factors in the latest price jump.
Where is ETH going?
The current rise in prices is not the result of any event, but stems from developments that have taken place over the years. However, there is no denying that the inflow of institutional money, along with the launch of CME Ether Futures in February, was key to ETH’s performance in this bull market.
In addition, the announcement of Visa that it will enable partners to settle transactions on Ethereum and the current low supply of ether on stock exchanges also played a role. After reaching the lowest 28 months, the lack of ETH supply on the stock exchanges not only increases the price, but can also be a potential sign of institutional accumulation.
Currently, there is also a strong bullish feeling around Ether. This is best reflected in the testimony of well-known investor and cryptocurrency whale Mark Cuban, who hailed Ether as “as close as we are to the real currency”. But where does everything lead from here?
Anton Bukov, co-founder of the 1inch Network, believes that a multi-chain network may be the key to the future of DeFi and NFT. If this is the case, competition may be crucial for the survival of Ethereum along with the wider crypto space. He told Cointelegraph: “From the beginning, Ethereum has been the cradle for DeFi, but today more and more projects are exploring the possibilities for expansion and presence on multiple chains.” He added:
“Projects are now forced to track their users because we see that Binance Smart Chain has a very strong growth trend in the number of wallets and transactions. In addition, some blockchains have started working on decentralized bridges. “
Phase 1 of the Eth2 upgrade is scheduled for release this year and will present the concept of debris chains. This key update, along with multi-layer two and interoperability solutions developed by other projects, should significantly improve the scaling of the Ethereum network.
Along with promises of scalability and lower gas fees for transactions and smart contracts, Eth2 brings with it the ability for users to invest their Ether and profit from it by running a node or joining one of the many available investment pools, or even going through a centralized exchange like Binance or Kraken.
The stake of Eth2 can also be one of the factors that increases the price of ether. So far, more than 7.7 billion dollars of Ether have been invested. Not only does this block supply, but a high annual percentage return on investment can be a driver of demand.
The second proposal, EIP-1559’s billing and combustion mechanism, will make Ether far rarer and more valuable if approved. The proposal to improve Ethereum aims to introduce a basic fee that will be burned when the transaction is completed. Miners would still receive a tip to confirm transactions, but earnings would decline. Although the proposal aims to bring the suddenly rising gas charges under control, it can also be considered a bull sign for Ether, as it would reduce its supply.