While Bitcoin has exhibited a stagnating monetary trend over the course of the last week or so, showcasing minor gains of just 3%, its crypto cousin Ether (ETH) seems to be on a roll by not only holding its own against the U.S. dollar but also consistently floating around the $1,300 threshold, and now ultimately, briefly surpassing the all-time high value of $1,428.
It’s interesting to note that unlike Bitcoin (BTC), Polkadot’s DOT and Chainlink’s LINK, as well as a host of other decently sized altcoins, ETH is one of the few premium digital assets to have not surpassed and stuck above its ATH through the course of this current bull cycle. According to some, the currency’s macro trend outlook looks “ridiculous bullish,” and if the currency is able to close above its previous ATH value, it’s touted to quickly ascend to around the $2,800–$3,200 region.
During the end of 2020, ETH’s value lay in the $500–$650 range, following which it saw an increase of about 100% within a matter of days. Ether was trading at around $1,200 level for some time, and therefore, if this “bullish” trend continues and the market does not face any serious negative backlash, it’s possible to expect another upward surge that will take the currency to the $2,000–$3,000 range.
Another reason for Ether potentially rising in the near future could be due to the fact that the crypto’s reserves across all centralized exchanges have plummeted, which seems to indicate that demand for the altcoin is rising. In this regard, data available online indicates that between Jan. 14 and 15, exchange reserves for ETH fell by a whopping 20% from 10 million to 8million. Not only that, according to information released by Glassnode, Ether reserves on centralized exchanges are currently at levels so low that have not been witnessed since July 2018.
Why is Ether leaving centralized trading platforms?
To get a better understanding of why ETH is flowing off exchanges at such a rapid pace, Justin Barlow, research analyst for digital assets data provider The Tie, pointed out to Cointelegraph that the ongoing offloading could mean that ETH is now starting to move to “stronger hands” — i.e., players who may not be looking to sell their holdings for instant liquidity, adding:
“This includes funds, token development teams and retail investors. While this is not a clear indicator, we are likely to see this trend continue as more regulated ways to purchase ETH are introduced such as the Grayscale ETH Trust or the 3iQ ETH fund that have multi-month lockup periods.”
Nikita Ovchinnik, chief business development officer at decentralized exchange aggregator 1inch, believes that there are multiple reasons that can explain this shift and that such a trend will most likely continue into the future. Ovchinnik stated that an increasing number of crypto investors have realized that there is no need to hold Ether on exchange wallets in order to sell it since there are a number of DEXs that provide highly competitive rates.
Additionally, the incentives that are offered by DEXs far outstrip those being offered by the centralized exchanges currently. For example, holding Ether in DeFi protocols allows investors to take part in yield farming, governance, staking and all other potent routes that can allow users to draw significant passive income streams.
Not only that, it’s no secret that holding tokens on centralized exchanges has always been a risky proposition since even the best trading platforms can suffer hacks and data breaches. On the issue, Ovchinnik further opined that “DeFi has taken a major step forward from a design perspective and has become extremely user-friendly at this point. This is another reason why institutional investors have become more active in the space.”
Is the incoming Ether boom real?
While Bitcoin is clearly still the favorite of the crypto industry, it seems as though its price is mostly governed by the “strict supply and elastic demand” model. As a result, the currency stands to become more of a long-term store of value, much like gold, rather than an ecosystem for technological innovation.
Ethereum, on the other hand, is quite different thanks to its advanced programmability-related features, such as smart contracts and, therefore, appears to function as a Swiss Army knife of crypto coins. On the subject, Sandeep Nailwal, chief operating officer of Matic Network — a blockchain-based scalability platform — told Cointelegraph:
“Ethereum has clearly established itself as THE decentralized execution platform for running Web3 business logic, be it decentralized finance or being a platform of choice for gaming and collectibles, aka NFTs. The huge DeFi wave of 2020 clearly indicates that it’s going to be the Wall Street of the 21st century, and the platform to run those business rules is Ethereum.”
He proceeded to add that while a number of naysayers continue to harp on the high gas fees, the fact of the matter remains that despite the current challenges, people are still using the network. Nailwal added: “Applications running on Ethereum are valuable enough for their users to pay hundreds of dollars in gas fees.”
Ovchinnik also added that Ethereum can potentially become the Wall Street of the crypto finance sector since it affords a wide array of investment opportunities to different market participants ranging from arbitrageurs to long-term investors.
While demand for most crypto assets is currently being determined by market speculation, Ethereum seems to be one of the few projects that has a real demand for the token itself, with the simplest example being gas fees, wherein users are deploying ETH for paying roughly $7 million in gas fees alone. Furthermore, ETH pairs are the most used across all DEXs, while the altcoin is also the primary asset being deployed for a majority of all DeFi-based lending and borrowing activities.
Lastly, staking on Ethereum 2.0 has also proven to be very popular, as is highlighted by the fact that nearly $3.75 billion is currently locked on the Beacon Chain since its launch last December. By making use of this staking option, wherein individuals have to invest a minimum of 32 ETH into the currency’s ecosystem, investors can earn rewards in the form of annualized interest on their holdings.
A bright future for Ether?
Earlier in the month, when Ether was still trading below the $1,000 threshold, Tyler Winklevoss, co-founder of the cryptocurrency exchange Gemini, stated that ETH is by far one of the most “underpriced” cryptocurrencies in the market today, adding that investors accumulating the digital currency right now are getting a steal for their money.
Meanwhile, Barlow believes that while Tyler and Cameron Winklevoss have high hopes for ETH in the near term, it’s still quite difficult to project ETH’s near-term price action with a high degree of certainty. Barlow added that despite ETHs lack of a hard cap, such as the 21 million cap of Bitcoin, it’s likely that ETH will continue to witness significant demand in 2021.
Furthermore, according to Barlow, as demand for blockchain decentralized applications continues to grow and the crypto market as a whole sees increasing institutional inflow, the growth trend will likely be accelerated further: “As the second-largest crypto by market cap, it is only natural that ETH should see new demand as institutions begin to look past a ‘crowded’ Bitcoin trade.”