Is ETH about to take off?

An in-depth but balanced analysis of Ethereum's current status, potential catalysts, supply and demand changes, etc., provides a conservative but systematically optimistic reflection on the question of "Is the price of Ethereum about to take off?"

Ethereum has had a rather disappointing price performance since the start of this bull run. While Bitcoin has managed to break through its all-time high, rising more than 350% from its cycle low, Ethereum has lagged behind. Its price action has been slow, lacking clear catalysts, and has been relatively weak in response to Bitcoin's price surges.

Recently, however, it seems that we have witnessed a shift in market sentiment. Now, the question on everyone’s mind is: is it finally time for Ethereum to shine?

In today’s discussion, we will delve deeper into this vital question.

But remember, no one can predict the future. So what follows is just some thoughts, and thoughts are particularly susceptible to change in the cryptocurrency space. As trading expert Peter Brandt perfectly expressed, "Have firm opinions, but be humble."

With that in mind, let’s dig deeper.

1. The current state of the network has great potential

In order to thoroughly analyze the potential of Ethereum (ETH), we first need to analyze the current status of the Ethereum blockchain. From a macro perspective, these factors make ETH valuable and attractive to investors.

1) Total Locked Value (TVL)

After a significant drop in total locked value (TVL) during the last bear market, there has been a clear restart in activity on the Ethereum blockchain. TVL has risen by about 200% over the past year. While there is still some room to reach all-time highs, the upward trend is clear.

Active addresses have shown great resilience over the past two years, never falling below 300,000 even at the lowest point of the bear market, demonstrating that Ethereum has moved beyond its initial hype phase to become a mature blockchain that has stood the test of time.

2) Value Flow

Value flow, a measure of income for holders and stakers, has also grown over the past rolling year.

3) Core developers

Core developers are an important indicator because it is developers who ultimately build the future of blockchain. With more than 440 full-time developers, Ethereum is at the forefront of development activity, and this number is still on an upward trend, which means that Ethereum is still very attractive to developers.

2. Some catalysts

In addition to healthy growing on-chain metrics, Ethereum has many upcoming catalysts. Here is a list of some of the important catalysts:

1) Spot ETFs to be launched in the future

Without a doubt, this is one of the most important catalysts for Ethereum. The unexpected approval of an Ethereum ETF reinforces the value proposition of cryptocurrency as an established asset class and will create a new wave of demand for Ethereum. Given the success of spot Bitcoin ETFs, there is every reason to be excited.

While it is difficult to accurately estimate the potential amount of money that could flow into an Ethereum ETF, we can derive a range of expected values ​​based on various expert forecasts. This gives different potential scenarios for first-year net inflows, ranging from $1.39 billion to $6.93 billion.

2) The next step is to estimate the impact of these potential capital inflows on the price of Ethereum

Again, there is no easy way to do this, but one option is to make some assumptions based on what happened with recent spot Bitcoin ETFs and adjust them for Ethereum for the following reasons:

Bitcoin's circulating market capitalization is currently about 3.15 times that of Ethereum. About 27% of Ethereum is staked, which means there is less circulating supply to buy and sell, and more explosive price action is possible. Since the merger with The Merge, Ethereum's supply has generally depreciated (-0.184%).

Therefore, a reasonable assumption is that Ethereum is four times more reactive than Bitcoin, meaning that for the same inflow of funds, the price of Ethereum will move four times more than Bitcoin.

Based on all this, we can come up with different estimates about how Ethereum’s price will perform by the end of 2024.

3. Regulatory clarity

In addition to a potential new source of demand, the approval of a spot ETF also brings much-needed clarity to the status of Ethereum as a commodity. We all know that markets generally like clear rules, so the more regulatory issues surrounding cryptocurrencies are resolved, the better.

1) Dencun Upgrade

This recent upgrade is very important for Ethereum. It brings several technical improvements that strengthen Ethereum's infrastructure, but one of the main features is that it significantly reduces transaction fees on the second layer network by enhancing data availability. This is a key move in establishing Ethereum as a scalable settlement layer.

2) US presidential election

Cryptocurrency has become a big topic in the upcoming election. On one hand, the current presidential candidate, Donald Trump, has made it clear that he supports cryptocurrencies. If elected, this could be a positive catalyst for cryptocurrency adoption and good for Ethereum. On the other hand, the Biden administration has been less clear on the issue but has shown some signs of loosening up. Overall, the outlook is bullish.

4. Ethereum supply is limited

At the end of the day, supply and demand are the only two variables that affect price. Right now we are facing a situation where, in addition to the various potential incremental demand explained earlier, the supply of Ethereum is also constrained. This is evidenced by the deflationary situation of Ethereum supply since the merger.

Additionally, the percentage of Ethereum that is staked is at an all-time high and continues to grow. This means there is less supply available to buy and trade on exchanges, which means the market needs less demand to drive price movement, so there is more potential for explosive price action.

5. Price Action

In addition to the various catalysts mentioned above, the current situation of Ethereum is also very interesting.

Looking back, we can observe that after bottoming out in June 2022, Ethereum traded sideways for nearly a year and a half before breaking out into the first wave of the bull market. Ethereum has now formed a consolidation pattern near the past highs for more than four months, and we are currently at some key resistance levels and the highest level of fear sentiment on the timeline. This could provide a potentially good buying opportunity from a medium to long-term perspective.

The current ETH/BTC chart is also approaching a critical turning point. In a long-term downtrend, BTC has dominated, but ETH/BTC has recently rebounded from multi-year lows and is showing strong momentum. If this momentum is maintained and ETH/BTC breaks out of the descending channel, we can expect ETH to attract a lot of market attention.

Last but not least, now seems to be the time to start Memecoin season. This bull run has been driven primarily by Bitcoin so far, with a few exceptions. Currently, Memecoin is performing near its all-time low compared to Bitcoin. However, we expect this trend to reverse at some point as investors shift their attention from Bitcoin to Memecoin. This potential market rotation fits in with our current bullish bias on ETH.

6. Negative impact

As with everything in life, it is important to keep a critical eye. Therefore, when analyzing Ethereum’s global prospects, it is also important to be aware of potential drawbacks that could negatively impact Ethereum:

• Global Market Performance: Ethereum is very sensitive to overall market sentiment. If the overall trend of the entire cryptocurrency market is downward, Ethereum is unlikely to perform well. While this is not the scenario we expected, it is still worth noting.

• ETF Expectations: Negative surprises on the ETF side, such as poor net inflows and interest generated, could have a negative impact on Ethereum in the short term.

Traditional finance has a harder time understanding Ethereum than Bitcoin: When the spot Bitcoin ETF was launched, Bitcoin was promoted as digital gold, and it was easy for the traditional finance community to understand this narrative. But for Ethereum, the situation is different, and there is no clear consensus on its value proposition. Some people see Ethereum as a global computer, some see it as a Web3 app store or a decentralized financial settlement layer, and so on. Confusion about what Ethereum really is may make it more difficult for the traditional finance community to allocate Ethereum in their portfolios.

Ethereum vs. Next Generation Blockchains: Ethereum has been widely criticized for being slow and expensive, especially when compared to newer blockchains. There are two schools of thought in this regard. On one hand, some believe this will lead to the slow death of Ethereum, while others believe this is not a problem because it uses Ethereum as a settlement layer for other layers to build and create a scalable infrastructure. Regardless of which side of the debate you are on, it is important to keep an open mind.

7. Summary

Ethereum initially lagged behind in the early stages of this bull run, but it now appears to be at an interesting point.

The current state of its blockchain is promising and solidifies its development as a mature L1 blockchain that will stand the test of time. Additionally, Ethereum has several bullish catalysts on both the demand and supply side, and the current price action is consistent with these factors.

However, as is always the case, things are rarely black and white, so it is important to remain aware of potential drawbacks that could negatively impact Ethereum.