The latest price promotions by Ether (ETH), which hit new all-time highs, took the cryptocurrency market by storm and signaled the official start of the off-season. Various analysts assume that Ether will surpass its previous all-time high of $ 2,130 and Bitcoin will continue to outperform for the foreseeable future.
Price predictions aside, there’s no denying that Ethereum tops the cryptocurrency fee and is home to DeFi flagship and non-fungible tokens. Yet, This movement comes at a time when the network is at an important crossroads.
Although many Layer 1 projects have been referred to as “Ethereum killers” over the years, Ethereum is only now facing real competition, mainly due to its scalability and congestion issues. If no solution is able to effectively scale the network, Ethereum could very soon lose ground to keep up with smart contract platforms.
Still, ether is the undisputed king of altcoins, second only to Bitcoin (BTC) in terms of market capitalization. Then, What factors are driving the price of ETH, and is the competitive landscape a real threat to the dominance of Ethereum?
NFTs are going viral
There’s substance behind the hype as NFT sales and auctions, as well as use cases, are becoming more common, especially in the games industry and the art world. Yet, Digital artists aren’t the only ones taking advantage of the trend and exploring the technology.
From celebrities like Logan Paul and Snoop Dogg to big sporting powers like Formula 1 and the NBA – and now even movie studios like Warner Bros – all kinds of people and companies use NFTs to promote themselves and create fonts. Alternative income.
When asked how NFTs are affecting the Ethereum ecosystem and the price of Ether, Suz Lee, director of marketing for Blind Boxes – an NFT platform for digital works of art – told Cointelegraph: “NFTs catalyze mainstream world dynamics in consumer sectors such as arts entertainment, professional sports, fashion, games, and automobiles. You pay the ETH buyer’s premium at Christie’s to purchase symbolized works.“”
Not only are NFTs unique, they are proven to provide content creators ownership of their work and a fairer share of the profits by eliminating middlemen. But despite its great potential to disrupt various industries, NFTs are likely not the main driving force behind Ether’s recent move. Unknown to many in the crypto community, NFT prices for collectibles have actually dropped slightly.
The Federal Reserve, Interest Rates, and DeFi
On the other hand, while the NFT craze seems to be slowing, DeFi is breaking records again. Due to the spike in the price of Ether, the total value set in DeFi protocols now exceeds $ 61 billion. There have also been significant gains in the number of transactions and the valuation of DeFi tokens.
Just as Bitcoin serves institutional investors as an entry point into the cryptocurrency market, Ether offers the same investors the opportunity to experiment with DeFi. Several companies and venture capital groups such as the DeFi Alliance (formerly the Chicago DeFi Alliance) have already made bold investments in the DeFi sector.
The number of institutional investors turning to DeFi is only expected to increase, which will help provide liquidity, reduce volatility and increase the sector’s credibility. Many DeFi projects are already developing solutions for institutional investors, offering risk management tools and other institutional services – similar to traditional financing – so that these companies can hedge their positions and minimize risk.
Justin Wright, CFO of investment platform Yield App, told Cointelegraph: “The days of real money returns are long gone“, particularly given the Federal Reserve’s recent announcement that interest rates will not hike. He also added:
“Major bank interest rates are now very close to zero. So if you factor in inflation and save on traditional fiat or cash assets at a traditional bank, you lose money.”
Wright believes that the only place you can get significant real returns on dollar assets is through decentralized funding, which is predominantly on the Ethereum blockchain. At DeFi, users with limited funds and experience can get double-digit returns on USD Coin (USDC), Tether (USDT) and other stable coins that are pegged and pegged to the US dollar and as such do not suffer from the volatility of many of the leading cryptocurrencies .
In addition, DeFi users can receive rewards in the platform’s home currency, giving stable coin saver holders access to some of DeFi’s fastest growing areas without putting capital at risk. This makes DeFi extremely attractive to savers and alternative investors who have been paralyzed for more than a decade.
Interoperability is the key
Interoperability-oriented blockchains like Polkadot and Cosmos are becoming increasingly important for the cryptocurrency ecosystem. Together with Layer 2 solutions, they can relieve Ethereum’s extremely deadlocked network. But, at least at this point, these solutions seem to only provide a dressing for the wound instead of fixing the problem.
On the other hand, the upcoming Ethereum 2.0 update has the potential to effectively scale the network and achieve greater acceptance of decentralized applications and DeFi. Yet, Only phase 0 was released, and the update has been so delayed in the past that it has become a meme.
The Ethereum network has reached an exclusive state. It seems that it has only become affordable for whales and wealthy investors, leaving ordinary users out. In order to conduct a simple transaction or deploy a smart contract, users have to pay excessive fees.
This has led a large portion of cryptocurrency developers and users to switch to other blockchains, with Binance Smart Chain being a major competitor to Ethereum. Several decentralized exchanges such as SushiSwap are now also using contracts in BSC and other networks to avoid high fees and offer merchants a cheaper service.
Although many projects are looking for alternatives and some predictions suggest that Ethereum could lose much of its dominance in the NFT market in favor of BSC, Ethereum’s network effect still appears to be too strong. Projects are not going to move completely away from the Ethereum blockchain in the short term, as it continues to have by far the most developer and user activity.
Maximalists believe the Ethereum blockchain will be the only smart contract platform the world needs. However, the popularity of interoperability solutions shows the opposite, suggesting that it is becoming more and more likely that we will see a future with multiple chains where multiple connected blockchains can be used interchangeably.
After Tesla bought $ 1.5 billion worth of Bitcoin, which has attracted a lot of glances in the crypto community, it should come as no surprise that more and more companies are looking to diversify and get long positions in To take ether. Institutional investors are now recognizing ether as a potential store of value, similar to Bitcoin, according to a Coinbase report
While it appears that cryptocurrencies have recently established themselves as an institutional asset class, the truth is that many Fortune 500 companies invested in ether almost a year ago. According to research, several Ethereum wallet addresses belong to big companies like JPMorgan Chase, IBM, Microsoft, Amazon and Walmart.
It is entirely possible that large institutional investors already own Ether but not yet have published.. Tesla did, and didn’t announce its Bitcoin investment until a month after the move. As Grayscale continues to build its Ether trust and large corporations continue to source Bitcoin and Ether, it is clear that institutional money is one of the factors behind the recent price hike.
Where is ETH going?
The current price increase is not the result of a single event, but is based on developments that have taken place over the years. YetIt cannot be denied that the inflow of institutional money coupled with the launch of the CME Ether Futures in February was critical to ETH’s performance in this bull market.
In addition, Visa’s announcement that it will allow its partners to process transactions in Ethereum and the current low supply of Ether on exchanges has contributed to this. After reaching a 28-month low, the lack of supply of ETH on the stock exchanges not only drives up the price, but can also be a potential sign of institutional build-up.
There is also a strong general upward trend towards Ether right now. This is best reflected in the testimony of renowned investor and crypto whale Mark Cuban, who referred to ether as “the closest we can get to a true currency”. But where is it all going?
Anton Bukov, co-founder of 1inch Network, believes that multi-chain could be the key to the future of DeFi and NFT. In this case, competition alongside the broader crypto space can be vital to Ethereum’s survival. He said to Cointelegraph: “Ethereum was the birthplace of DeFi from the start, but today more and more projects are looking for ways to expand and be present across multiple chains.“And he added:
“Projects are now forced to follow their users as we see that Binance Smart Chain has a very strong growth trend in the number of wallets and transactions. Also, some blockchains have started to work on decentralized bridges.”
Phase 1 of the Eth2 update is planned for this year and will introduce the concept of fragment chains. This important update, in conjunction with the multi-layer 2 and interoperability solutions developed by other projects, will greatly improve the scalability of the Ethereum network.
In addition to promising scalability and lower gas rates for smart contracts and transactions, Eth2 also gives users the ability to get their airwaves on the line and earn rewards by running a node or joining one of the many staking pools available, or even through a central exchange like Binance or Kraken.
The use of Eth2 can also be one of the factors causing the price of Ether to rise. To date, more than $ 7.7 billion of ether has been used. Not only does this block supply, but the high annual percentage returns from use can also drive demand.
Another suggestion that EIP-1559 “Charge and Burn” MechanismIt will make ether much scarcer and more valuable if approved. The Ethereum upgrade proposal aims to introduce a basic fee that will be burned on a transaction. The miners would still receive a tip for validating the transactions, but their profits would decrease. While the proposal aims to get the skyrocketing gas rates under control, it can also be viewed as a bullish signal for Ether as it would reduce its supply.