The price of Ether experienced a 10% increase in the first nine days of February, surpassing $2,450 for the first time in three weeks. This rise was in line with the overall positive momentum of the cryptocurrency market and was greatly influenced by the macroeconomic environment.
Despite the reasons behind the rally in Ether, investors are becoming more optimistic as deposits on the Ethereum network continue to increase. However, the question remains whether this momentum is enough for a sustained rise above $2,800.
Weak economic data in China and the increasing fiscal debt in the United States have created opportunities for risk-on assets. In an interview, United States Federal Reserve Chair Jerome Powell emphasized the need for a more sustainable public debt path. Projections indicate a potential increase in debt service costs, prompting the Fed’s policy interest rate to decrease.
In China, the manufacturing activity contraction for the fourth consecutive month has raised concerns among traditional finance investors. The Chinese central bank has implemented measures to support the real estate development market, which is currently under pressure due to high debt leverage.
Investors have also sold some fixed-income positions, causing the two-year U.S. Treasury yield to reach its highest level in two months. The S&P 500 index has also reached a record high, indicating that investors are not overly worried about a potential economic crisis in the short term. Nevertheless, the fiscal debt trends in the U.S. create an ideal scenario for alternative assets like Ether.
While the stock market continues to attract the majority of the flow for risk-on assets, this movement also opens the door for alternative investments. Some stocks, such as chipmaker Nvidia and e-commerce giant Amazon, are currently trading at significantly higher earnings multiples than the S&P 500 average, making scarce alternative assets like Ether more attractive.
To determine whether Ether’s price gains in February are supported by sustainable demand, one should monitor the on-chain activity of the Ethereum network. The network’s smart contract deposits, measured by the total value locked (TVL), reached an 11-month high, with a 19% increase from the previous month. Most of this surge occurred on the EigenLayer liquid staking solution.
Other notable applications include Mantle LSP, Ether.fi, and Pendle, all contributing to the growth of the Ethereum network. Additionally, Ethereum has maintained its position as the leader in fees, indicating strong demand. In the past 24 hours, Ethereum’s fees have been eight times higher than Tron’s and more than 12 times higher than BNB Chain’s.
Beyond its current use cases, there is optimism for Ether investors with the potential introduction of a new nonfungible token format called ERC-404. This format would allow for fractionalized capabilities within the existing ERC-721 standard, potentially boosting sector activity and increasing demand for ETH. Furthermore, the upcoming Dencun network upgrade scheduled for March 13 is expected to bring benefits such as reduced transaction costs.
Considering the interest from fixed-income investors seeking alternatives to stocks and the continuous growth of the Ethereum network, Ether investors are confident in the recent price gains and the resistance at $2,650. Compared to Ether’s previous test of this level on Jan. 11, the price action appears stronger.
Please note that this article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.