Ethereum price rebounds towards key resistance, but is ETH’s strength sustainable?

Ethereum (ETH) is trading higher on December 1 despite being unable to break the $2,100 resistance level. This level has prompted several rejections over the past three weeks, especially considering Ethereum’s 16.2% rise in November.

However, the current positive momentum is supported by several factors, including spot ETF applications and the expansion of the Ethereum ecosystem by layer 2 solutions.

ETH benefits from ETF expectations and negative news related to competing blockchains.

A pivotal development occurred on November 30th when the U.S. Securities and Exchange Commission (SEC) began the review process for Fidelity’s proposed spot Ether ETF filed on November 17th. The move, along with similar applications from companies such as BlackRock, awaits review by regulators. Green light. If approved, these ETFs will strengthen Ether’s status as a digital commodity, reducing the likelihood that Ether will be treated as a security.

Application deadlines for VanEck and ARK 21Shares scheduled for Dec. 25 and Dec. 26, respectively, have kept market participation despite analysts predicting the SEC may delay its decision until early 2024. The growing interest of large mutual funds in Ether products is having a favorable impact on the price.

The growth of the Ethereum network is noteworthy, especially in trading activity and layer 2 development. The Ethereum layer-2 ecosystem has become increasingly important, with average transaction fees hovering above $4 over the past few months. These Layer 2 solutions provide a more cost-effective and flexible option than the base layer.

This growth is reflected in Ethereum’s total value locked (TVL), which recently hit a two-month high of 13 million ETH, driven by a 13% weekly increase in Spark and a 60% increase in Blast user deposits.

In contrast, Tron, another leading blockchain in terms of TVL, has recorded a 12% decline over the past 10 days. The recent high-profile hacking incident involving Tron founder Justin Sun has also shaken investor confidence in Ethereum.

TVL growth is based on Ethereum layer-2 innovations.

Blast, an Ethereum layer-2 project, has amassed an impressive $647 million in TVL, demonstrating the vibrant development in this field. Despite criticism of centralization issues and smart contract flexibility, Blast’s self-promoted features such as automatic compounding and stablecoin yields have attracted considerable attention. On the other hand, Blast has been criticized for its centralization and flexibility in smart contract upgrades.

Blast in particular is just one part of a larger ecosystem. Ethereum’s leading scaling solutions, Arbitrum and Optimism, have a combined TVL of $2.94 billion. In the context of TVL, it is insightful to compare Ethereum’s robust layer 2 ecosystem with other blockchains. Although these solutions still incur significant base tier payment fees, the impressive growth and increased activity experienced over time is undeniable.

Related: Why is the cryptocurrency market rising today?

Let’s take Solana (SOL) as an example. The current value of the entire TVL, covering projects such as Marinade Finance, Jito, marginfi, Solend and Orca, is $671 million. This sharp contrast highlights the advantage of Ethereum’s layer 2 solutions over competitors such as Cardano (ADA), BSC Chain (BNB), and Avalanche (AVAX), which are blockchains that primarily focus on native scaling solutions. However, Ethereum’s approach of leveraging layer 2 technologies appears to have gained more traction and user trust, as evidenced by increased activity.

Essentially, Ether’s recent push towards the $2,100 resistance level was largely influenced by the expected approval of spot ETFs in the US and the growing market share of decentralized applications.

The continued advancement and attractiveness of Ethereum layer 2 solutions that mitigate high transaction costs are playing a critical role in attracting users and maintaining Ether’s positive market trajectory.