Ether (ETH) came close to breaking the $2,400 resistance on December 9 but was unable to do so, leading to a retest of the $2,120 support level. However, investors now have more confidence in surpassing this level and venturing into uncharted territory not seen since May 2022, before the collapse of the Terra ecosystem. On December 22, Ether saw a 4% increase, while Bitcoin (BTC) and BNB (BNB) remained mostly unchanged.
While the focus is currently on the narrative surrounding the exchange-traded fund (ETF) as the main driver of recent cryptocurrency gains, there are several factors supporting Ether’s price surge that could potentially push it above $2,500 before the expected ETF approval in mid-January, although the United States Securities and Exchange Commission (SEC) may take until March.
Instead of trying to predict the future, which is a difficult task in the fast-paced cryptocurrency industry, it is more prudent to analyze recent trends that are influencing the demand for Ether. One can start by looking at the activity of decentralized applications (DApps) as an indicator. DApp volumes can provide insights into the demand for Ether, especially in sectors that do not require a large total value locked (TVL), such as nonfungible token marketplaces, games, layer-2 bridges, and social networks.
In the last seven days, Ethereum DApp volumes reached $27.8 billion, marking a 14.2% increase from the previous week. This growth was driven by a 21% gain in Uniswap volumes and a 52% gain in Balancer volumes. In contrast, BNB Chain had volumes of $4.5 billion, while Arbitrum had volumes of $5 billion. Notably, Ethereum was the only blockchain among the top six to experience an increase in volume in the past seven days.
To put this into perspective, Solana (SOL) would need to increase by 12 times to reach half of Ethereum DApps’ current transaction volume. Generally, 20% of users account for 80% of the volume, and this holds true for DApps. Given Ethereum’s first-mover advantage and its substantial treasury for ecosystem development support, it is unlikely that another blockchain will overtake it in the short to medium term.
Moreover, no other blockchain can match Ethereum’s protocol, which generated $95.4 million in fees in the last seven days, excluding Bitcoin. These fees not only incentivize network security but also indicate significant potential for increased activity following future updates, including the “DenCun” update scheduled for January, which aims to enhance processing capacity and reduce costs.
The eventual approval of the Ether spot ETF will differentiate Ether from other cryptocurrencies in terms of regulation. Competitors have only been marginally mentioned by regulators in recent court cases against exchanges, which have faced charges for offering securities brokerage and services without proper registration.
Investors should also consider the positioning of Ether derivatives traders, particularly large investors and market makers. The Ether futures premium, which measures the difference between two-month contracts and the spot price, has reached its highest level in over a year. In a healthy market, the annualized premium, or basis rate, typically falls within the 5% to 10% range.
The current 13.5% Ether futures annualized premium indicates that traders are not taking the approval of the spot Ether ETF for granted. During periods of widespread excitement, this indicator tends to exceed 20%, driven by increased demand for leveraged long positions, which can cause price distortions relative to the spot market. This data suggests the potential for a positive price impact in the event of approval, whether in January or March.
Based on Ethereum’s network activity and the indications from the ETH derivatives market, Ether investors should not be swayed by contenders gaining momentum, at least not until these contenders pose a genuine threat in terms of volumes and deposits. Furthermore, the ETH derivatives indicator shows that professional traders are bullish despite Ether’s price nearing its highest level since May 2022. This suggests that investors have confidence in Ether’s ability to break above $2,500.
Please note that this article does not provide investment advice or recommendations. Every investment and trading move carries risks, and readers should conduct their own research before making any decisions.