In addition to the larger crypto markets’ movements, $ETH price is also influenced by factors specific to the Ethereum blockchain.
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Crypto market often acts in a synchronized way, rising and falling to the macro events, just like the stock market does.
Currently, $BTC and $ETH monthly correlation coefficient is 0.77 (1 indicating a perfect positive correlation, 0 – no correlation, and -1 – negative correlation).
However, different cryptocurrencies also have their individual characteristics that affect both their price and value, and in this newsletter we will be analyzing Ethereum’s.
⚙️ Ethereum’s technological updates have marked many de-correlation events, when $ETH rose and fell more dramatically than $BTC.
🕹️ When it comes to value, Ethereum ecosystem’s development is the main focus point that indicates the blockchain’s long-term utility.
⚖️ Finally, regulation is a force that can both hurt and stimulate the crypto industry development, and last week showed that Ethereum and other web3 coins could be in danger in one of the world’s biggest markets – the US.
Upon Ethereum launch back in 2014, its creator Vitalik Buterin outlined the roadmap for its development, from the “Frontier” in 2015 to “Serenity” – the stage we entered in 2022, when the blockchain effectively switched from PoW to PoS consensus.
This event is known as the Merge, and as often, it triggered the “buy the rumor, sell the news” trading activity: the expectations started to build up 2 months prior, $ETH gaining over 70%, and then abruptly losing a half of it ($BTC gained only 19% at that period of time, losing all of it afterwards).
The recent Shanghai upgrade has spurred speculations about the staking behavior.
Shanghai fork enabled ETH validators to un-stake their ethers, and before the event many were worried that it would trigger a massive un-staking and sale of ETH. In reality, the opposite happened: allowing withdrawals reduced the liquidity risk associated with locking up ETH, and numerous investors – including institutional ones – have rushed into the space. $ETH price gained 11% on April 12th, the day of the upgrade.
Top ETH staking service providers have already recorded about three times larger inflows in April compared to all of last month, according to ConsenSys, with 80% of the inflows happened after the Shanghai upgrade went live.
This confirms the results of a survey conducted in February by Kiln, a staking service provider, which recorded 68% of investors willing to start staking or increase their staked amount after Shanghai. So far, the net inflow from Ethereum (excluding rewards) reached 340500 ETH (Dune).
Currently 18.6 million of ETH, or $35bn, are locked up in Ethereum staking contracts.
The following expected upgrades will be:
EIP-4844, which will contain the first prototype for danksharding (using the sharding method to increase the space for groups of data), expected sometime in the third quarter of this year.
The futures upgrades, updated recently by Vitalik Buterin, will include the Verge (increasing scalability), the Purge (getting rid of historical data to decrease network congestion), and the Scourge (addressing certain centralization issues).
Unlike Bitcoin, Ethereum’s mission is not to serve as money, but to fuel the smart contract platform, on which third-party developers are building their DApps. This implies that DApps’ success is intrinsically linked to Ethereum success – and its price.
As the figures of Q1 2023 show, Ethereum is still a go-to destination for many web3 developers. Alchemy, a leading provider of web3 developer tools, recorded a steady growth of Ethereum SDK (software development kit) installs.
Ethereum is now 5th most-popular blockchain, with 126k unique active wallets in Q3 2023.
It is behind the highly scalable BNB, WAX, Polygon (Ethereum’s layer-2), and Hive, which are prime destinations for gaming and social DApps.
In the NFT realm, however, Ethereum is uncontested.
The recent turbulence in traditional finance only highlighted the need for a decentralized financial infrastructure, and DeFi is gaining traction.
Daily transaction volumes on DEXs (decentralized exchanges) nearly reached 25 billion on March 11, when SVB collapsed, before coming back down to normal levels by around April.
Uniswap, the largest DEX on Ethereum, hit a record volume of $11.8 billion. Uniswap liquidity providers also earned $77 million in fees in March, up from approximately $41 million in January and about $72 million in February.
With over 67% of Total Value Locked, Ethereum is still an absolute leader.
On the legal front, things are not great for Ethereum (and other cryptos, except, probably, only Bitcoin).
Since the beginning of the year, the SEC and several other US agencies are leading one attack after another on the US crypto firms (read more here), while refusing to give the industry the appropriate guidelines.
Last week the House Financial Services Committee conveyed Gary Gensler, the SEC Chair, to testify on this matter, accusing him of intentionally sabotaging the crypto industry.
The representatives, however, did not manage to extract any useful information from Mr Gensler, and the questioning by Rep. McHenry – asking whether Ether is a security – will become legendary:
Rep. Davidson has proposed legislation to remove Mr Gensler from his position, and Coinbase has made several threats that it will leave the country if the legislators don’t change their attitude.
The crypto markets slumped 10% on the day of the hearing.
Overall, with a market cap of $220 billion (18% of the total crypto market cap), a vibrant ecosystem, and smooth upgrades, Ethereum is here to stay. Even if major firms using it will have to leave the US.