Ethereum has been quite disappointing in terms of price performance since this bull run began. While Bitcoin managed to break out of its all-time high, rising more than 350% from its cycle lows, Ethereum appears to be lagging behind. Its price action has been slow, lacks clear catalysts, and has been relatively weak when Bitcoin prices spike.
Recently, however, it seems we have witnessed a shift in market sentiment. Now, the question on everyone’s mind is: Is it time for Ethereum to finally shine?
In today’s discussion, we’ll delve into this crucial question.
But remember, no one can predict the future. So what follows are just some ideas, and ideas are particularly prone to change in the cryptocurrency industry. As trading expert Peter Brandt so perfectly expressed it, “Be firm in your opinions, but humble in your attitude.”
With this idea in mind, let’s delve deeper.
1. The current state of the Internet has great potential
In order to thoroughly analyze Ethereum’s potential, it is first necessary to analyze the current status of the Ethereum blockchain. From an overall economic perspective, these factors make Ethereum valuable and attractive to investors.
1) Total Value Locked (TVL)
There has been a noticeable restart in activity on the Ethereum blockchain after a significant drop in total value locked (TVL) during the last bear market. TVL is up about 200% in the past year. While there is still some room for improvement to reach all-time highs, the upward trend is clear.
Source: Foresight News
Active addresses have shown great resilience over the past two years, never falling below 300,000 even at the lowest point of the bear market. This shows that Ethereum has moved beyond the initial hype stage to become a mature blockchain that has stood the test of time.
Source: Foresight News
2) Value flow
Value flow, a measure of revenue for holders and stakers, has also grown over the past rolling year.
Source: Foresight News
3) Core developers
Core developers are an important metric because ultimately it is developers who build the future of blockchain. With more than 440 full-time developers, Ethereum leads the way in terms of development activity, and this number is still on the rise, which means that Ethereum is still very attractive to developers.
Source: Foresight News
2. Some catalysts
In addition to on-chain indicators of healthy growth, Ethereum has a number of upcoming catalysts. Here is a list of some important catalysts:
1) Spot ETFs launched in the future
Without a doubt, this is one of the most important catalysts for Ethereum. The surprise approval of an Ethereum ETF reinforces the cryptocurrency’s value proposition as an established asset class and will create a new wave of demand for Ethereum. Given the success of spot Bitcoin ETFs, there's every reason to be excited.
While it’s difficult to accurately estimate the potential amount of money flowing into an Ethereum ETF, we can come up with a range of expectations based on predictions from various experts. This gives different potential scenarios for first-year net inflows, ranging from $1.39 billion to $6.93 billion.
2) The next step is to estimate the price impact of these potential inflows on Ethereum
Again, there's no easy way to do this, but one option is to make some assumptions based on what's happened with spot Bitcoin ETFs recently and adjust for Ethereum, for the following reasons:
The circulating market capitalization of Bitcoin is currently approximately 3.15 times that of Ethereum. Approximately 27% of Ethereum is staked, meaning there is less circulating supply to buy and sell, and potentially more explosive price action. Ethereum’s supply has generally been depreciating (-0.184%) since The Merge.
Therefore, a reasonable assumption is that Ethereum is four times more reactive than Bitcoin, meaning that for the same inflows, the price of Ethereum will move four times more than Bitcoin.
Based on all this, we can come up with different estimates regarding the price performance of Ethereum by the end of 2024
Source: Foresight News
3. Clarity of supervision
In addition to potential new sources of demand, the approval of a spot ETF brings much-needed clarity to Ethereum’s status as a commodity. We all know that markets generally like clear rules, so the more regulatory issues surrounding cryptocurrencies are addressed, the better.
1) Dencun upgrade
This recent upgrade is very important for Ethereum. It brings several technical improvements that solidify Ethereum’s infrastructure, but one of its main features is a significant reduction in transaction fees on the second-layer network through enhanced data availability. This is a key move towards establishing Ethereum as a scalable settlement layer.
2) US presidential election
Cryptocurrency has become an important topic in the upcoming election. On the one hand, current presidential candidate Trump has clearly stated his support for cryptocurrency. If elected, this could be a positive catalyst for cryptocurrency adoption, benefiting Ethereum. The Biden administration, on the other hand, has been less clear on the issue but has shown some signs of easing. Overall, the outlook is bullish.
4. Ethereum supply is limited
At the end of the day, supply and demand are the only two variables that affect price. Now we are faced with a situation where, in addition to the various potential incremental demands explained earlier, the supply of Ethereum is also constrained. This is evidenced by the deflation of Ethereum supply since the merger.
Source: Foresight News
Additionally, the proportion of Ethereum staked reached an all-time high and continues to grow. This means there is less supply available to buy and trade on exchanges, which also means the market needs less demand to drive price movement, so there is more potential for explosive price action.
Source: Foresight News
5. Price Action
In addition to the various catalysts mentioned earlier, the current situation with Ethereum is very interesting.
Looking back, we can observe that after bottoming in June 2022, Ethereum traded sideways for almost a year and a half before breaking out into the first leg of the bull market. Now, Ethereum has formed a consolidation pattern near past highs that has lasted for over four months, and we are currently at some key resistance levels and have the greatest level of fear on the timeline. This could provide potentially good buying opportunities from a mid- to long-term perspective.
Source: Foresight News
The current Ethereum/Bitcoin chart is also approaching a key turning point. Bitcoin has dominated the long-term downtrend, but Ethereum/Bitcoin has recently rebounded from multi-year lows and is showing strong momentum. If this momentum holds and Ethereum/Bitcoin breaks out of the descending channel, we can expect Ethereum to attract a lot of market attention.
Source: Foresight News
Last but not least, now seems like a good time to start meme coin season. So far, this bull run has been driven primarily by Bitcoin, with a few exceptions. Currently, meme coins are performing near all-time lows compared to Bitcoin. However, we expect this trend to reverse at some point as investors shift their focus from Bitcoin to meme coins. This potential market rotation is consistent with our current bullish bias on Ethereum.
Source: Foresight News
6. Negative impact
As with everything in life, it's important to keep a critical eye. Therefore, when analyzing Ethereum’s global prospects, it is also important to pay attention to potential shortcomings that may have a negative impact on Ethereum:
Global Market Performance: Ethereum is very sensitive to overall market sentiment. If the overall trend across the cryptocurrency market is downward, Ethereum is unlikely to perform well. While this isn't the scenario we expected, it's still worth noting.
ETF Expectations: Negative surprises on the ETF front, such as net inflows and poor interest generated, could have a negative impact on Ethereum in the short term.
Ethereum is more difficult for the traditional financial community to understand than Bitcoin: When the spot Bitcoin ETF was launched, Bitcoin was promoted as digital gold, a narrative that was easily understood by the traditional financial community. But the situation is different for Ethereum, where there is no clear consensus on its value proposition. Some see Ethereum as a global computer, some see it as a Web3 app store or a decentralized financial settlement layer, and so on. Confusion over what Ethereum really is may make it more difficult for the traditional financial community to allocate Ethereum in their portfolios.
Ethereum vs. next-generation blockchains: Ethereum has been widely criticized for being slower and more expensive, especially compared to newer blockchains. In this regard, there are two views. On one hand, some believe that this will lead to the slow demise of Ethereum, while others believe that this is not a problem because it uses Ethereum as a settlement layer for other layers to build and create scalable functional infrastructure. No matter which side of the debate you're on, it's important to keep an open mind.
7. Summary
Ethereum initially lagged early in this bull run, but currently it appears to be at an interesting moment.
The current state of its blockchain is exciting and solidifies its development as a mature L1 blockchain that will stand the test of time. Additionally, Ethereum has several bullish catalysts on the demand and supply side, and current price action is consistent with these factors.
However, as is always the case, things are rarely black and white, so it is important to remain aware of potential shortcomings that could negatively impact Ethereum.
Disclaimer】The market is risky, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: Foresight News
Original author: FLOW
