Over the past month, Ethereum (ETH) gained more than 60%, climbing over 30% in only one week. As Bitcoin dropped following May 13th, Ethereum showed signs of a correction, but most analysts believe the rally is not over yet.
The reduction of fees following the last Berlin hard fork as well as a continued influx of institutional investors are considered the background for Ethereum’s strong gains. According to cryptocurrency media outlet Cointelegraph “the true result of the Berlin hard fork is that Ethereum’s fee efficiency increased and that the trade volume grew on decentralized exchanges like Uniswap (UNI) and Sushiswap (SUSHI)”, adding “Ethereum broke a major resistance line with strong market momentum”.
Particularly institutional investors have recently focused more attention on Ethereum. Investment bank JP Morgan finds “Decentralized Finance (DeFi) is greatly growing and Ethereum will overtake Bitcoin in the long term”. This view holds that if Bitcoin is a store of value, Ethereum has more exchange value as a currency in the financial industry.
Also, investment products using Ethereum are constantly being developed, further improving investor accessibility. According to German economic and financial newspaper Die Welt, “The price of Ethereum has reached an all-time high and is creating a new momentum […] European investment banks are putting out digital bonds based on the Ethereum blockchain, which is driving price increases”. Also, last March, three Ethereum exchange-traded funds (ETF) were launched in Canada that track the price of Ethereum.
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Caution against short-term decline needed following Ethereum’s ‘lone wolf upswing’
Some analysts have recently found that Ethereum has escaped Bitcoin’s influence. This view holds that Ethereum can continue its upswing regardless of the situation on the overall crypto market. According to crypto market analysis firm Intotheblock, the correlation between Ethereum and Bitcoin prices has reached the lowest level in two years at -0.18. In his newsletter, crypto trader Scott Melker noted “not only is there no correlation between Bitcoin and Ethereum, but now they have entered a negative correlation”. While in the past, if the Bitcoin price rose, Ethereum has often followed, Ethereum has recently broken out of this price trend and created its own momentum.
Some market observers point out that the recent influx of institutional investors is continuing and that chances are high that the price of Ethereum will keep climbing for a while. On Twitter, CryptoQuant CEO Ju Ki Young recently wrote “US institutional investors purchased large quantities of Ethereum on Coinbase. Ethereum’s purchasing power is currently coming from institutional investors”. As institutional investors keep pouring in, some outlooks see Ethereum climbing to a new high of $10,000. According to a recent fund report by market research firm Fundstrat “Over the past few weeks, Ethereum’s total market capitalization approached 30% of Bitcoin’s market cap […] In light of past patterns from 2017, Ethereum’s value could continue to rise, reaching 80% of Bitcoin”. This analysis finds that Ethereum could see a price increase that outpaces even the sharp increase Bitcoin has recently seen.
On the other hand, some voices warn that Ethereum investors should beware of a short-term reversal. Cryptocurrency news publisher AMBCrypto wrote on the 14th that “Ethereum climbed 30% within the past 5 days and fell 10% the previous day […] This is the result of the long-delayed adjustment of alt coins including Ethereum and not a trend reversal”. AMBCrypto advises caution, finding that while Ethereum is not entering a downtrend, there is a high chance of a short-term correction. Writing for NewsBTC, analyst Aayushi Jindal finds: “Ethereum’s main resistance is at $3,950. If it cannot hold its current price, Ethereum could drop to $3,680 dollars and then $3,300 dollars”. Ethereum’s Relative Strength Index (RSI) has been staying significantly below 50. This index suggests that among 100 investors, more than half are selling.
Blockchain analysis firm Chainalysis takes a more bearish view, noting that “capital is more concentrated with Ethereum. If it enters a downtrend, the downside risk for Ethereum is greater than for Bitcoin”. The firm warns that caution is advised because investor buying or selling can often become skewed towards one side, creating additional risk in a downturn. Cryptonews offered the following analysis: “With current asset inflation, Ethereum is less stable than Bitcoin. Looking at past patterns, if it enters a bear market, chances are high that it will see a bigger correction than Bitcoin”.
Price increase expected after July London hard fork
This July, Ethereum plans to improve fees by introducing Ethereum Improvement Proposal 1559 (EIP-1559) through the London hard fork update. Once EIP-1559 is implemented, tokens used for fees will be burnt each time. This is expected to reduce ETH supply. As the supply of Ethereum decreases, many expect the price of Ethereum to increase further.
Coinshare’s Chief Strategy Officer (CSO) Meltem Demirors points out that “demand for Ethereum is increasing and because supply plans will change following the hard fork in July, capital is currently flooding into Ethereum”. Analyst Joseph Young offers a similar view in a recent tweet: “Ethereum is on a bull run and if a solution emerges that improves the blockchain’s fees and processing speed, it will get even stronger”.
While JP Morgan considers the Ethereum price to be slightly overvalued at present, the investment bank notes: “Institutional investors’ Ethereum holdings have doubled and if Ethereum ETF such as that submitted by Van Eck are approved in the US, the current price might be justified”.