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Ethereum (ETH) has been in existence for about ten years now and it has become one of the favorite crypto assets among investors. Especially as it goes beyond simply being a digital currency and serving as a global decentralized computing platform. It is actually considered the most advanced and decentralized smart contract platform. As a cryptocurrency, ETH has also been positioned well in the crypto industry with it being the second biggest in terms of market cap, right after Bitcoin.
The market cap of ETH currently stands at approximately $216 billion, with roughly 120.66 million coins in circulation. Unfortunately, ETH prices have declined about 46% over the past year because of competitive pressures. That notwithstanding, some experts are actually bullish on Ethereum and expect it to reach a new all-time high by the end of this year. But why do they have such an optimistic outlook? Read on to find out.
The rise of Ethereum ETFs
When the SEC announced the approval of spot Ethereum exchange-traded funds (ETFs) in mid-last year, it felt like a long-awaited moment for many traditional investors. These ETFs will allow investors to invest in an asset without actually buying it.
In this case, the ETH ETFs are exciting for traditional investors because they allow them to tap into the potential of Ethereum without necessarily holding the actual cryptocurrency. Since ETFs are managed by financial institutions and regulated by governments, they are considered safer, thus attracting big investors. That means that more money can flow into Ethereum.
While the crypto space is moving rapidly, institutions have not been left behind. The large financial firms, pension funds and many more that were skeptical about investing in crypto because of direct crypto exposure are now warming up to it because of ETFs. Of course, with the strict regulations and risk management policies in place, it is quite difficult for many institutions to own any cryptocurrency directly. But now, with Ethereum ETFs, they can pour their money in because the risk of owning actual crypto is mitigated.
As more institutions invest in Ethereum through ETFs, the demand is likely to go up, which can lead to hikes in ETH prices. Additionally, the fact that ETH ETFs were approved by the SEC and that big companies like JPMorgan Chase have invested in them, portrays Ethereum as a credible and legitimate asset and thus it is drawing more people to it. Also, seeing how Bitcoin’s demand increased after its spot ETF was launched in January last year gives experts more reason to be optimistic about Ethereum.
Technology upgrades
Amidst Ethereum’s current situation, which Geoff Kendrick, Head of Digital Asset Research at Standard Chartered Bank, termed as a ‘midlife crisis,’ it is undergoing several tech upgrades to make it more efficient and attractive. Historically, Ethereum has struggled with high gas fees, which made small transactions expensive and really put off everyday users.
Thanks to the implementation of EIP-4844 from the Dencun upgrade, which has reduced transaction fees on layer two roll-ups have been significantly reduced. The upgrade is expected to make the network faster and cheaper to use so that it will attract more developers and investors.
The upcoming Ethereum Pectra upgrade, which is currently in its testing stage and is set to go live soon, is also expected to enhance the network even more. It will combine two major updates, namely Prague, which will target the execution layer, and Electra, which will focus on the consensus layer. Together, this will comprehensively improve Ethereum’s scalability and user experience, which could make more people adopt it, resulting in a higher ETH demand.
Among these upgrades, one of the major developments is Sharding, which is also expected to make the network more scalable by dividing the blockchain into smaller, manageable parts called shards. The shards can process transactions or smart contracts in parallel, thus allowing the network to handle more transactions per second. This distribution of workload would reduce the network congestion and make it faster while becoming able to support the growing number of users. These development strategies are why people are still positive about Ethereum’s price; they are expected to strengthen the system for long-term growth.
A Decreasing Number of ETH Supply
Actually, after the EIP-1559 upgrade in August 2021 and the transition from Proof of Work (PoW) to Proof of Stake (PoS) in September 2022, Ethereum became deflationary. This means more ETH coins were removed from circulation, reducing the supply over time. As you already know, a lower supply ideally causes an increase in the value of the asset.
But it is worth noting that Ethereum is not always deflationary. Since it has no fixed supply, it changes its status from inflationary to deflationary depending on several factors. When there is too much network activity, it can become deflationary by activating a mechanism called coin-burning. When the activity is low, it can increase the number of coins in circulation.
Interestingly, due to this ‘balancing effect,’ the ETH supply has remained stable at around 120 million for the second year. In fact, the present level differs only by 0.47% from the level one year ago. As Ethereum is gearing up for increased network activity in the long term, analysts expect that the number of coins will significantly reduce, causing the price to keep rising.
Even though Ethereum seems to be taking a downward trajectory at the moment, there is quite some hope to hold on to hope that it will rise over time. While crypto prices can be unpredictable, the rise in its ETFs, its technological upgrades, and its coin-burning mechanism seem to make a solid case for it.
