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Gate.io Blog - Ethereum Breaches ATH... What comes next?

10 November 16:49

Over the last month, the second largest cryptocurrency has been reaching new records, displaying great strength with a 33% increase and no signs of stopping.

This might be no surprise considering the overall bullish trend in the crypto markets (now with a market cap over $3 trillion), which is probably going to continue as we see a considerable amount of optimism for a Moonvember. The 4 year Bitcoin cycle does come to an end next month, so expectations are high for a parabolic move unless this cycle lengthens, but that is a whole other story.

Besides the obvious results yielded by a bull market, it might also be relevant to observe other factors that influence Ethereum’s appreciation. Indeed, it is not all a natural consequence of a bull run as there are quite a few developments behind the scene that drive the price momentum.

Layer 1 cryptos have been exploding in the last couple of weeks, following Bitcoin’s lead. This was particularly the case for newer protocols like Solana, Terra, Avalanche or even Polkadot, as the utility and use case narrative behind them is pouring massive amounts of interest. Naturally, Ethereum was also amongst the bigger gainers. Following this reasoning, we notice three areas that give a solid foundation for this growth.

First of all, Layer 2 solutions for Ethereum have been a buzz for a long time. Now it is a reality, with Arbitrum or Optimism rolling out and the whole space having almost $5 billion locked in value, with most of it entering in the last 2 months. This tendency is most likely to continue as new projects like ZKSync or ImmutableX join the fray, offering useful solutions to scale Ethereum during the eternal wait for Eth 2.0, opening up accessibility within the ecosystem. More total value locked, use cases and transactions on L2s are positive for Ethereum.

Source: l2beat.com

Furthermore, this should contribute to cooling off the gas fee complaints. Earlier this year, when EIP-1559 was launched, it was a strong narrative to attack Ethereum even if it was not supposed to address this issue. By unloading part of its activity on second layers, users should be able to interact with more sensible transaction fees.

In second place, the ERC-20 activity has been steadily increasing too. Some tokens, like SHIB, have been on a moon mission. This translates into more activity on the Ethereum chain, with an extra 30% ERC-20 daily transactions since the end of summer.

Source: etherscan.io

Memecoins have been a trend lately, such as the aforementioned SHIB. However, the other hype-centric theme in these last couple of weeks has been the metaverse. Partly due to the Facebook rebranding, but also the ongoing development of projects related to this space has created an important demand for Ethereum.

NFTs, blockchain gaming and virtual worlds all collide in this metanarrative that consolidates Ethereum as the main player. The leap forward in crypto-gaming is being spearheaded by AAA quality products such as Illuvium, which will further increase the interest of an industry worth dozens of billions and count many millions of daily users. The well-known case of Axie Infinity is only the tip of the iceberg.

The NFT space is in a similar position. After the summer lull in the markets, there seems to be a resurgence in activity and interest. Ethereum truly shines here, as the most prominent NFT Marketplaces have always been ETH-based. As per the data shared on DappRadar, we observe that half of the top 10 marketplaces are on Ethereum, led by the ever-present Opensea and followed by two other ETH based projects (Axie and CryptoPunks).

Source: dappradar.com

The crushing volume lead displayed by Opensea is a clear symptom of how far off Ethereum is in this space, despite the boost experienced by other Layer 1s. The activity on the leading NFT Marketplace is a great example of the third point: Ethereum Burning.

Since the EIP-1559 was introduced, there have been more than 800,000 ETH burned. On a daily basis, it is quite common to see more ether burned than mined. Thus, Ethereum is heading towards deflation as the supply shrinks. Some call it ultrasound money, burying many of the critics that accused Ethereum of having an endless supply akin to infinite money-printing fiat. The NFT craze certainly plays a role as Opensea is listed as the highest source of ether burning with a staggering 96,000 ETH, even more than regular ether transfers.

Source: ultrasound.money

Therefore, the impact of Layer 2s, network activity with highly demanded tokens, NFTs and metaverses, as well as the introduction of the fee burn are significant arguments to explain the sustained growth of Ethereum on every level, not only due to bull market dynamics.

As mentioned above, these trends will carry on with new developments and areas being absorbed by DeFi and smart contracts, elevating its greatest proponent to unseen heights. At least it is what smart money is betting as we see known personalities such as Raoul Pal going “irresponsibility long” on Ethereum. He is just one of the many examples among big investors and institutions that have set eyes on this crypto, as Bitcoin no longer is their only interest.

Such an inflow of new capital would be very positive for Ethereum, not only for price appreciation, but for adoption and acceptance on a mainstream level.

Source: twitter.com/RaoulGMI

Another indicator that might give a hint on the price direction of Ethereum, albeit data-driven, would be the ETH/BTC pair.

Currently sitting at a little over 0.07 BTC per ETH, it is not even halfway through from the all time high of 0.157 corresponding to June 2017. During this cycle, ETH has steadily been gaining ground over BTC after hitting a bottom of less than 0.02 in August 2019, in the middle of the bear market. This trend is likely to continue if the previous cycle could be a reliable indicator.

Source: tradingview.com

On-chain data suggest such a bullish outcome, as the current price movement of Ethereum is mimicking that of Bitcoin in the previous cycle. Many analysts and news outlets have echoed the uncanny similarities between both cryptocurrencies, with a full cycle difference in-between. This fractal would indicate a price of more or less $20,000 per ether at the peak of the bull run, which is not dissimilar to what predictions forecast.

By extrapolating this to the ETH/BTC pair, if it were to reach similar levels to mid-2017, Bitcoin would have a value of more than $130,000. This number seems quite realistic, or even conservative, compared to prominent analyst predictions such as PlanB or Willy Woo. An increased value of Bitcoin up to $200,000 or $300,000 while maintaining a conservative ETH/BTC ratio would put ETH easily above $20,000 and could reach twice that target in the most bullish scenarios.

By adding up all the above arguments, we might conclude that Ethereum is improving rapidly over time, showing tremendous strength in every metric. Despite the rise of other Layer 1 protocols that eat up part of its market share, Ethereum remains the smart contract king. As the DeFi space continues to grow, so will all its participants. It is not a zero-sum game, quite on the contrary. Everyone benefits in the long term from continuous growth and adoption.

Author: Bernabé L.
*This article only represents the views of observers and does not constitute any investment advice.
*The content of this article is original and the copyright belongs to Gate.io. If you need to reprint, please indicate the author and source, otherwise legal responsibility will be pursued.

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