Main reasons why ETH outperforms other currencies

The price of Ethereum (ETH) has reached a new annual high of USD 322 and exceeded the previous high of February 2020. There are three key catalysts behind the ETH rally.

Since early 2020, the expectation of Ethereum 2.0, which would allow users to stake out, has pushed ETH’s demand upwards. The deployment allows users to receive incentives when miners are removed from the Ethereum network. A PoS consensus algorithm (proof of stake) does not require miners in the protocol. Instead, users involved in the ETH process data and information together by staking out. In return, they receive ETH rewards.

After the so-called “Black Thursday” correction on March 13, when the ETH briefly fell below USD 90, the DeFi market began to expand rapidly. As new protocols like Compound introduced their incentive systems, the demand for decentralized funding continued to increase. In May, less than $ 1 billion was blocked on DeFi platforms. By July 26, more than $ 3.75 billion had been stored in various DeFi logs.

Main reasons why ETH outperforms other currencies
Main reasons why ETH outperforms other currencies

The optimism about DeFi and Ethereum 2.0 ultimately led to Ether’s options and spot markets recording record volumes and open interest. Since the beginning of the second quarter, the ETH options market has continuously reached new highs in terms of trading activity. As a result, ETH’s upward trend has intensified in a short time.

Santiment, an on-chain data analytics company in the cryptocurrency market, said ETH had risen for the 42nd time in $ 300 history. A recovery above $ 350 would be important, according to researchers, since it has occurred only three times in the past. Santiment explained in a Tweet: “It is clear that #Ethereum is at its “sweet spot”, where historically the greatest polarization has developed in its five-year history (between $ 200 and $ 300)“”

Times the price of ether rose above every important price level

Times the price of ether rose above all important price levels. Source: Santiment

Based on the technical structure of the ether market, some traders indicated that the main short-term resistance levels are still $ 308 and $ 400. Michaël van de Poppe, a Cointelegraph employee and full-time trader on the Amsterdam Stock Exchange, said in one Tweet that ETH has increased more than expected: “A little more than a month ago. But we are fine. It could resist at the $ 308 level. But for me that’s basically the last hurdle before over $ 400. “

Reason No. 1: DeFi uses new heights

The first and perhaps largest catalyst for Ether’s upward trend in recent months has been the explosion of the DeFi market. Since May, The total value blocked in DeFi protocols has almost quadrupled to $ 3.75 billion. Popular protocols such as Compound, Maker, Aave, Synthetic and Curve Finance have seen a significant increase in users since mid-June.

The DeFi market has grown so quickly that Ethereum’s blockchain network has trouble keeping up to date. If users are using the DeFi platforms, neYou stop sending data in the form of smart contracts and transactions. In most cases, Users must use decentralized switches to purchase different tokens.

Last month, The Ethereum blockchain network is saturated. If the network is congested, users will have to pay higher gas or transaction fees to process their payments or smart contracts. John Todaro, research director of the institutional trading platform TradeBlock, said On Twitter that the growth of DeFi would push up the price of ETH in the long term:

“Look at the report we published in 2019 on the impact DeFi could have on the demand for #Ethereum. We haven’t seen an increase in the ETH price of $ ETH yet, but there’s no doubt about it that the demand for fast growing DeFi will depress the price of the highest ETH in the long term. “

The enthusiasm for DeFi has also fueled other sub-markets within Ethereum. For example, Anthony Sassano, marketing director of Set Protocol, he showed as Weekly DEX volume has increased to $ 1.5 billion. As a result, other key markets within Ethereum have started to reach new highs in various measurements.

Last year, the total value blocked in DeFi protocols increased from $ 500 million to $ 3.4 billion. Sassano explained that it shows exponential growth in a short time. He showed: “Two days ago, $ 3 billion was blocked for DeFi, which means that $ 400 million has gone into the system since then. It took DeFi ~ 18 months to go from $ 0 to $ 400 million!“”

Reason # 2 and # 3: Ethereum 2.0 with increasing options and timely demand

Especially since the beginning of the second quarter of 2020, the Ethereum market has seen high options and spot demand. Earlier rises were led by the futures market. BitMEX’s funding rate for Ether was around 0.2% in February 2020. This means that long position holders had to incentivize short position holders with significant interest rates due to market imbalances.

During the recent rally, the funding rate of futures contracts on ether remained relatively low. Despite an increase of 30% in the past five days, the ETH financing rate for BitMEX is well below 0.2%. This is probably due to the fact that the spot and options market plays an important role in the ongoing ETH rally.

On July 24, the Deribit team announced that it had achieved a record volume of ETH options and open interest. Deribit accounts for 93% of the ETH options market in terms of open interest. tweet: “We have a new record for ETH option volume and open interest! With a 24-hour peak volume of $ 49 million, the open rate for ETH deribit is $ 241 million (and currently 93% of Ethereum’s global market share)!“”

Santiment researchers also found that ETH offers room for additional growth compared to the performance of the most important old coins. Cryptocurrencies like Chainlink’s LINK reached new highs in July and significantly outperformed key crypto assets. Possibly due to the lack of futures market share in the Ether Rally, some analysts see room for another rally for ETH. Santiment explained On twitter:

“The top 100 # blockchains by market cap over the past 30 days show that ETH still has a long way to go to catch most of the other # altcoins. This is a positive sign for current # owners of Ethereum, currently + 16, 3% over the past 30 days versus an average top 100 return of + 32.7%. “

In the long run, Ethereum 2.0 could act as a new catalyst, especially if ETH approaches Q4 2020. Ethereum developers, led by fork coordinator Afri Schoedon, said the official launch of the Ethereum 2.0 test network will begin on August 4th.

The first phase of Ethereum 2.0 is known as the “beacon chain”. To be activated or started, developers must develop test networks to mimic the conditions of the beacon chain. A stable, long-term test network is required to ensure a smooth release of Ethereum 2.0, Schoedon wrote on GitHub. The Medalla test network is expected to be the last test network before the start of the main network, as Schoedon said:

“Before such a core network can be started, we need test networks that mimic the conditions of the main network as well as possible. This requires that stable, long-term and permanent test networks are in operation that are not only supported by a customer, but by several customers, ideally all customers. “

Positive advances in Ethereum 2.0, especially in The Medalla’s test network, could further improve the mood regarding Ether in the coming months. The combination of the rapid growth of the DeFi market and the growing demand on the spot and options market in connection with the hype surrounding Ethereum 2.0 seems to be causing a strong recovery for ETH.

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