Ethereum’s native token, Ether (ETH), experienced a 20% rally from January 8 to January 11, but struggled to maintain its position above $2,600. Despite a 3.5% correction down to $2,560 on January 16, Ether’s price has outperformed Bitcoin (BTC) by 19.5% since January 8. This level of outperformance is unusual and has not been seen since October 2022.
Investors in Ether are now questioning whether the $2,500 level will hold, especially since the expected catalysts in the short term, such as the Ethereum spot exchange-traded fund (ETF) and the planned Ethereum network upgrades, are not yet in place. From a bullish perspective, these events present an opportunity for Ether to decouple further from the rest of the cryptocurrency market. However, they also pose a risk if they fail or are delayed.
Historically, Ether has not typically outperformed Bitcoin by 15% or more in a week. In 2023, Ethereum faced disappointment due to its declining total value locked (TVL) and high gas fees, which paved the way for competing blockchains. Meanwhile, Bitcoin benefited from the anticipation of a spot ETF approval, particularly after BlackRock joined the race in June 2023.
The last instance of Ether outperforming Bitcoin by a significant margin occurred 14 months ago when Ether’s price rallied from $1,305 to $1,615 in a week. However, the gap closed in the following 11 days as ETH crashed below $1,100 on November 9, 2022. It’s important not to rely solely on this past instance as a guide for future prices, especially considering the circumstances surrounding the FTX exchange’s downfall during that time.
Another example is the 31-day period between July 13, 2022, and August 13, 2022, when Ether’s price outperformed Bitcoin by 63%. During this time, Ether rallied from $1,080 to $1,990, and the gap relative to Bitcoin’s price persisted even as the cryptocurrency market faced a correction, contrary to expectations based on Bitcoin’s dominance.
To determine whether Ether can hold the $2,500 support, it is crucial to analyze the Ethereum network activity and its scaling solutions. Decreased usage of decentralized applications (DApps) on the Ethereum network could indicate less demand for ETH. However, over the past 30 days, the top Ethereum DApps have experienced a 26% decrease in the number of active addresses, suggesting a decline in usage.
On the other hand, Ethereum DApps have seen a 41% increase in volume over the past 30 days, driven by projects like Uniswap, Balancer, ParaSwap, and Aave. Even without considering activity in Ethereum rollups, the base layer of Ethereum still holds a significant advantage over its largest competitor, BNB Chain, in terms of dominance in the DeFi industry.
In addition to the strong on-chain activity, Ether’s price could benefit from the upcoming “Dencun” hard fork, which aims to increase data availability and reduce costs for rollup transactions. The test implementations for this upgrade are expected to begin on January 17. Furthermore, analysts from Bloomberg ETF predict a 70% chance of an Ethereum ETF approval by May, which could further strengthen the bullish momentum and support the $2,500 price level.
It is important to note that this article does not provide investment advice. Readers should conduct their own research and make informed decisions when it comes to investments and trading.