Ether (ETH) last traded above $4,000 on March 14, two months before the U.S. Securities and Exchange Commission approved an Ether spot exchange-traded fund (ETF) on May 23. Traders are questioning whether the bullish momentum has faded and, if not, what could drive a sustained rally above $4,000.
The launch of the Spot Ether ETF was not optimal.
Part of the lack of investor enthusiasm can be attributed to the disappointing performance of the cryptocurrency market. The total market capitalization of the sector currently stands at $2.42 trillion, 16.5% below the March 14 2024 peak of $2.82 trillion. A contributing factor is the Federal Reserve’s successful strategy of suppressing inflation without causing a recession, which has reduced the appeal of alternative assets.
But Ether appears to be facing its own set of problems. Its price has fallen 10% against Bitcoin (BTC) over the past two months. This is partly due to net outflows of $406 million from Ether spot ETFs in the US since their debut on July 23, but the outflows are concentrated in Grayscale’s products.
The total value locked (TVL) on the Ethereum network remains at ETH 17.8 million for the past two months, suggesting that ecosystem growth may be stagnating. Some analysts argue that Ethereum gas fees, which have been above $1.80 for the past few months, are incentivizing layer 2 scaling solutions. However, according to L2Beat data, the TVL for these solutions has remained relatively constant at ETH 12.9 million for the past two months.
Essentially, for Ether to reclaim the $4,000 support level, institutional interest must increase. This could be reflected in the trend of net spot ETF inflows in the US, or at least the cessation of outflows from the Grayscale ETHE fund. As institutional money enters the space, traders will look for confirmation by measuring the TVL in the ecosystem.
However, some investors have become skeptical about the growth of deposits in decentralized applications (DApps). This skepticism is due to the participation of projects that have large inflows ahead of venture capital funds or airdrops but fail to maintain initial hype. As a result, TVL growth should be consistent with improvements in other on-chain metrics, such as the number of active addresses.
Ethereum TVL needs to grow, but the roadmap also needs to be addressed.
While Ethereum fans claim that the project’s decentralization is far superior to competitors like Solana (SOL), BNB Chain (BNB), and Tron (TRX), this argument falls short when reputable investment firms choose to launch projects elsewhere. The most recent example occurred on July 23, when US-listed asset manager Hamilton Lane chose Solana’s Libre to launch a tokenization project.
Even more concerning is that Ethereum’s dominance among retail traders has been challenged recently, with Solana taking the lead in decentralized exchange (DEX) volume. Fueled by the launch of Mimecoin on Pump.fun, Solana achieved 29.6% DEX market share in July, surpassing Ethereum’s 28.1%, according to DeFirama data.
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Finally, sustainable price growth for Ethereum depends on a clearer timeline for proposed scalability improvements to Ethereum, including sharding (parallel processing) and Miner Extractable Value (MEV) mitigation strategies. Proposed changes, such as dankharding, aim to significantly improve data availability by increasing the current limit of one blob per block to 64.
The next upgrade, called the Pectra fork, is expected to introduce Verkle trees to reduce storage requirements and improve data accessibility. Investors are also eagerly awaiting the implementation of zero-knowledge SNARKs, which are expected to reduce the storage requirements of blockchains by increasing privacy and compressing transaction data into concise proofs.
There is still a chance that Ether will reach $4,000 in 2024, but this will only happen if issues related to institutional adoption, scalability, and the growth of the DApp ecosystem are addressed.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.