Could Ethereum reach $5000 by the end of the year? Analyzing the driving forces behind the 'Christmas rally'. After stabilizing above $3900, traders are anticipating a year-end surge known as the 'Christmas rally'. Although there is resistance above $4000 technically, there is still potential.

Firstly, the market atmosphere is positive. The new U.S. government supports the crypto industry, with Trump promising assistance; his nominated officials are crypto advocates and his family has increased their holdings in ETH and other assets, injecting bullish sentiment and creating high buying pressure towards the end of the year, which is favorable for Ethereum.

Secondly, the market position and ETF capital inflow. Bitcoin may become a big winner due to the U.S. establishing a national reserve, and altcoins like Ethereum are also expected to rebound. Ethereum dominates the DeFi space with a 56% share of total locked value, making it a preferred choice for new investors, and the capital inflow from its spot ETF has been rising since Trump's election victory, solidifying its advantage with further upside potential.

Thirdly, on-chain activity is heating up. Glassnode data shows an increase in the number of active Ethereum addresses, transaction counts, and total transfer volume, approaching yearly highs, reinforcing the narrative of application and supporting price while establishing deflationary characteristics, driving prices up.

How high can Ethereum go? Although close to historical highs, it exhibits similar cyclical fluctuations as Bitcoin. Bitcoin entered a price discovery phase last month, while Ethereum typically lags by up to two months, potentially breaking new highs in January 2024. On-chain data indicates that its 'realized market cap' has reached a new high and its market cap to realized market cap ratio is low, with profitability below peak levels, all showing significant upside potential. In the last cycle, Ethereum rose over four times its historical high; if this repeats, prices could approach $20000, which is not out of reach considering its history and fundamentals.