InvestorCrypto.net - Ethereum (ETH), the largest cryptocurrency from the open-source Ethereum network, has surged almost 70% over the past 12 months.
However, it still trades around 35% below its all-time high of $4,815, which was reached during the peak of the cryptocurrency buying frenzy in November 2021.
Some bullish investors believe that the price of Ether could skyrocket even further.
Matthew Sigel and Patrick Bush from VanEck predict that it will reach $11,800 by 2030, while Cathie Wood from Ark Invest is confident that it could reach $166,000 by 2032. Investors should not solely rely on these predictions; however, I am convinced that Ether still has the potential to move much higher for four simple reasons.
1. Stable Interest rates
Ether, Bitcoin, and many other cryptocurrencies took a hit in 2022 as rising interest rates pushed investors towards more conservative investments.
However, the Federal Reserve recently maintained its interest rates unchanged and is unlikely to raise them again this year. This stability, along with expectations of lower interest rates after inflation subsides, will drive more investors back into cryptocurrencies and riskier assets.
2. Decreasing Supply
In August 2021, the Ethereum network implemented two major changes with the "London" upgrade. First, they changed the transaction fee calculation - also known as "gas fees" - from a manual bidding system to an automatic system.
This change streamlined and simplified the process by setting prices based on network congestion. Second, they began "burning" - or removing from circulation - the base fee of every transaction on their network. This burning process ensures that only Ether can be used to pay for transactions across the Ethereum Network (strengthening its economic value) while gradually reducing its supply to stabilize its market price.
In September 2022, the Ethereum Network transitioned from the energy-intensive proof-of-work (PoW) mining method (used by Bitcoin) to the more energy-efficient proof-of-stake (PoS) method.
This transition, known as "The Merge," reduced total mining energy consumption by about 99.95%. It also made the Ethereum Network experience deflation - meaning more Ether being burned than issued. As a result, approximately $12.7 billion worth of Ether has been burned since the London upgrade.
That is equivalent to 3% of its current market capitalization of $378 billion. Although the burning rate may gradually decline, the ongoing process will limit the potential downside for cryptocurrencies.
3. Potential ETF approvals in the future
The U.S. Securities and Exchange Commission (SEC) approved the first spot price Bitcoin exchange-traded fund (ETF) earlier this year.
However, the SEC remains reluctant to approve the first spot price ETF for Ether because it believes Bitcoin is the only cryptocurrency that can be considered an asset, not a security.
The SEC views Bitcoin's PoW process as more akin to physical mining of precious metals, allowing it to establish a spot price driven by the market like gold and silver.
However, Ethereum's PoS process makes it more akin to a security, subject to stricter regulations than commodities.
The SEC seems hesitant to approve the first spot price ETF for Ether in the near future, but ETF issuers - including VanEck, Ark Invest, and seven other companies - may take legal action against the agency to expedite the process. Recent approvals of Bitcoin and Ether ETFs in Hong Kong could also push the SEC to stop procrastinating.
4. Growth of decentralized applications
One of the main differentiators between Ether and Bitcoin is its open-source network. While the Bitcoin blockchain can only be used to mine cryptocurrencies, developers can build decentralized applications, tokens, and other crypto assets on the Ethereum Network.
According to Fortune Business Insights, the decentralized application market could grow at a compound annual growth rate (CAGR) of 28% from 2023 to 2030 as more companies launch decentralized investment, lending, and crypto services not tied to centralized financial institutions. This expansion could drive more companies and consumers to adopt Ether as the primary digital currency.
In conclusion, while past performance is not indicative of future results, Ether's potential for growth remains high given its fundamental strengths and the evolving landscape of the cryptocurrency market. Investors should conduct thorough research and consult with financial advisors before making any investment decisions.
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