Is the price of Ethereum expected to exceed $5,000 by the end of the year? Explain the driving factors behind the "Christmas market"

As Ethereum (ETH) price consolidates above $3,900, traders are eyeing a possible surge before the end of the year, a phenomenon dubbed the “Christmas rally.”

From a technical perspective, Ethereum is currently performing well with the price trading above all major moving averages and maintaining a clear uptrend.

However, resistance formed by highs above around $4,000 in early 2024 is still limiting further breakthroughs in Ethereum prices.

However, for Ethereum investors, "Christmas" may come early.

Although Polymarket’s betting odds show that Ethereum prices will break out of their all-time high ($5,000) by the end of the year at just 14%, this may underestimate the potential for a strong breakout. Here’s why:

Reasons why Ethereum price is about to surge to $5,000

Reason 1: Market atmosphere

Describing the current crypto market as “good” may be an understatement. Especially in the context of the new US government, which will take office in March next year, showing strong support for the crypto industry.

Trump promised this week to make significant contributions to the crypto industry, and his nominees for Treasury Secretary and Chairman of the Securities and Exchange Commission (SEC) are both staunch crypto supporters. In addition, his family was recently found to have increased their holdings of crypto assets such as ETH, AAVE, and LINK. These signs have injected strong bullish confidence into the market.

It is no exaggeration to say that we are standing on the threshold of a new era in the crypto market, with the decisive positive turn in US policy marking the arrival of a "golden age".

This trend is a big reason why buying pressure is likely to remain high until the end of the year, which is bullish for Ethereum prices.

Reason 2: Market leadership and ETF inflows

The prospect of the United States establishing a national Bitcoin reserve suggests that Bitcoin (BTC) will be a huge winner under the new administration.

However, altcoins, such as Ethereum, which have been under pressure in recent years due to regulatory uncertainty, may see a more significant rebound.

Ethereum is expected to be one of the strongest performing altcoins. According to DeFi Llama data, even though it has been surpassed by Solana in terms of speculative trading activity (thanks to its lower transaction fees), Ethereum still leads the DeFi total locked volume (TVL) market share by a wide margin with 56%, continuing to dominate the decentralized finance sector.

For new crypto investors looking to expand their investments beyond Bitcoin, Ethereum is probably the most obvious choice.

This is particularly notable because Ethereum is one of the only major crypto assets in the United States to have a spot ETF.

According to data provided by The Block, Ethereum ETF inflows have continued to rise since Trump's victory, further consolidating Ethereum's market advantage.

There is still room for further gains in Ethereum prices before the end of the year as there are no signs of the current positive trend slowing down.

Reason 3: On-chain activity is heating up

Another bullish reason for Ethereum’s price is that activity on its blockchain is rapidly heating up.

According to Glassnode’s Ethereum on-chain core data panel, key indicators such as the number of active addresses, number of transactions, and total transfer volume are all on an upward trend and close to annual highs. This not only strengthens Ethereum’s adoption narrative, but also supports its price.

In addition, this further establishes the characteristics of Ethereum as a deflationary asset - the Ethereum burning mechanism will destroy part of the transaction fees (Gas fees), so the more active the activity, the more ETH will be destroyed, thereby reducing the circulating supply and having a positive impact on the price.

How high can Ethereum go?

With Ethereum prices near all-time highs, investors may be concerned that the best part of this rally is over. But such concerns may be misplaced.

Similar to Bitcoin, Ethereum prices have historically moved in cycles: aggressive price discovery phases are often followed by sharp pullbacks and long periods of consolidation.

But for bulls, a new price discovery phase may be imminent. Bitcoin entered a new round of price discovery last month, and historical data shows that Bitcoin almost always reaches this stage within 8 months after the halving.

Ethereum tends to lag behind Bitcoin by up to two months. This means that Ethereum may see a strong breakthrough and set a new all-time high in January 2024.

On-chain data also supports the argument that the peak has not yet been reached - Ethereum's "realized market value" (the total market value calculated by the average price of each coin when it last moved) has just hit a new record, reaching nearly $248 billion. According to Glassnode data, Ethereum's market value to realized market value ratio is currently around 1.5, which is far lower than the levels at previous market peaks (over 3).

This suggests that Ethereum prices still have a lot of room to rise and the current market cycle may just be beginning.

Meanwhile, while profitability in the Ethereum market is high, it is still lower than levels seen during previous price peaks.

According to Glassnode data, Ethereum’s net unrealized profit/loss (NUPL) has recently been just above 0.5, while during previous market peaks this metric would typically exceed 0.75.

This shows that the current market still has the potential to rise further and has not yet reached the historical overheated state.

No one can give a definite answer to the question "How high can Ethereum go?" But what is certain is that the potential is still very large.

In the last cycle, the price of Ethereum rose to more than 4 times its previous all-time high. If this kind of growth happens again, the price of Ethereum may approach the $20,000 level.

While this goal sounds ambitious, it is not out of reach given Ethereum’s historical performance and fundamental support.