Ether’s $4K: Fading Hype or Lasting Support?

The price of Ether, the cryptocurrency linked to the Ethereum network, has experienced a significant rally in the past month, outperforming other cryptocurrencies by 14%. Although it has not been able to maintain levels above $4,000, Ether reached its highest price in over two years, closing the gap with Bitcoin. Some traders believe that this surge in price is due to optimism surrounding the potential approval of a spot Ethereum exchange-traded fund (ETF). There is a concern that if the ETF decision is fully priced in, there may be a “sell the news” scenario in the initial weeks following the announcement.

The U.S. Securities and Exchange Commission is expected to make a final decision on the spot Ethereum ETF by May 23, with analysts estimating a 35% chance of approval. In addition to the ETF speculation, other factors have contributed to the recent price gains of Ether, including the upcoming Dencun network upgrade scheduled for March 13. This upgrade is expected to significantly reduce transaction fees on the Ethereum network, which has been a persistent issue.

Critics of Ether argue that despite the recent price increase, it still remains 19% lower than its peak in November 2021. Ether’s current market cap of $480 billion places it among the top 20 global tradable assets, surpassing companies like UnitedHealth and ExxonMobil in terms of market value. Investors in Ether also have the opportunity to earn a 4% yield by participating in the network’s proof-of-stake consensus. The demand for Ether is largely dependent on the activity within the Ethereum ecosystem.

The growth of the Ethereum ecosystem, even on the second layer, is beneficial for the price of Ether, as it is required for validating and processing transactions. The Ethereum network has demonstrated its dominance, with nearly 590,000 active addresses on the base layer and growing transaction volumes. It is important to examine the specifics of this growth to determine if it is widespread or limited to a few projects.

While professional traders are bullish on Ether, there are concerns about excessive leverage in the market. The Ether futures market has seen a high premium, indicating a level of optimism not seen in over 18 months. High premiums can attract arbitrage investors who may short the futures and buy spot Ether to balance out the market. As time goes on without a clear breakthrough above $4,000, the risk of a sell-off increases.