What’s Driving the Sharp Increase in the Price of Ethereum?
Ethereum (ETH) has increased in value by nearly 30% last week, approaching the all-time high of over $4,360 set in May, and breaking the $4,000 barrier for the first time in three months.While that sounds impressive, many analysts believe that its price will rise even further.Numerous factors are driving the rise in the price of ETH, ranging from increased market demand for NFTs which are largely Ethereum based, to the overall buoyancy of the crypto bull market increase.
Just recen t ly U.K.-based bank Standard Chartered made an eye-catching price prediction which sees Ethereum potentially rising tenfold, with a price target of $26,000 to $35,000 per ether.Indeed, the UK bank estimates that Ethereum will overtakeBitcoin in total value in the not-too-distant future.“In other words, while potential returns may be greater for Ethereum than for Bitcoin, risks are also higher,” said the bank’s team, addingthat the current price reflects both the relative complexity of Ethereum and the uncertainty around its development.The report also sees promise with the upgrade to Ethereum 2.0, designed to support better network scaling, improvedfunctionality and added efficiency.
The market for NFTs is booming
Non-fungible tokens or NFTs are a one-of-a-kind digital collectible.One of the best use cases for NFTs is as works of art, such as Mike ‘Beeple’ Winkelmann’s ‘Everyday: The First 5000 Days,’ which sold for nearly $70 million earlier this year.
NFTs can also be sports trading cards or video clips of historical sporting events for example.
They can even be purchased in-game assets by gamers, such as virtual land, weapons, and character clothing.A unique feature of NFTs is that the copyright, authorship, and all the ownership information isencoded into the token and then stored on the blockchain.
As a result, while anyone can share a copy of Beeple art, only one person can own the NFT itself, like owning a signed version of a work of art that is one-of-a-kind.So, what is the connection between NFT and Ethereum? The Ethereum network hosts a significant portion of the NFT market to date.What this means is that when people buy and sell NFTs; they must use ETH, the Ethereum token to pay for the transactions.
The greater the demand for ETH, the higher the price, driven by demand.And according to available data, Ethereum has generated more than $560 million in revenue in the last 30 days.
One reason for people’s optimism about Ethereum is that its upgrade at the start of last month was successful.The upgrade, also known as the London hard fork, and it means that the market for ETH tokens will grow more slowly.The blockchain has a long-standing problem with scaling, and its highly unpredictable and sometimes exorbitant transaction fees can annoy even its biggest fans; “The problem has become worse in recent months thanks to a surge in interest in NFTs, mostly built on Ethereum’s blockchain, as well as an explosive growth in the world of decentralized finance, or DeFi, which also largely uses the ethereum blockchain”, reported CNBC shortly after the start of the hard folk.
A code change is a key aspect of the hard fork, meaning ETH tokens will be destroyed or “burnt” to use the industry jargon, as part of every transaction.This reduces the amount of ETH in circulation and both lower transaction feesand make the costs more predictable.
The impact of smart contracts on prices
According to CoinMarketCap, the total market value of cryptocurrencies has risen from US$1.57 trillion a month ago to US$2.27 trillion today.Within this market Ethereum, a programmable blockchain with smart contract functionality as part of its design, has emerged as the clear winner.A smart contract is a small piece of code stored on the blockchain.What’s powerful about them is that they permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.
This smart contract technology has been particularly impactful in driving the rise of DeFi or decentralized finance, with a lot of applications or DApps, built on Ethereum.
As reported in The Conversation, users can borrow, trade, lend and invest through autonomous smart contracts via protocols like Compound, Aaveand Yearn Finance: “It sounds like science fiction, but this is no hypothetical market — approximately US$24 billion is locked into various DeFi projects right now.
Importantly, DeFi allows users to generate income on their cryptocurrency holdings, especially their ether tokens.”
In the last few days, the price of Ethereum has fallen back from its recent highs, so it’s worth keeping these fluctuations in mind and doing your research before investing in the cryptocurrency.Certainly, it’s worth comparing with rival platform Solana which has a much faster transaction speed and cost, has risen in value by over 13,000% year-to-date.“Solana is a legitimate competitor to Ethereum, with lightning-fast transactions at a fraction of the price,” said Scott Melker, a crypto investor and analyst who is the host of The Wolf Of All Streets Podcast.
Whether its recent upgrades will enable it to beat rivals such as Solana remains to be seen, but with the market in NFTs, the continued growth of DeFi, and innovations such as GameFimean Ethereum’s value looks a safe bet for investors in the immediate future.
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