Ethereum is the number two cryptocurrency project for a reason. While Bitcoin (BTC) enjoys the first mover advantage, many argue that Ethereum, and its native token Ether, offer far more value than BTC. But how much value exactly? Is the future of Ethereum bullish enough that it will someday overtake BTC as the number one cryptocurrency? Like anything in crypto, there are many factors to consider. So let's break it down now and offer a logical glimpse into the future for Ethereum.
Before we dig too deep into Ethereum news, fundamentals and utilities, let’s take a quick peek and see what the experts have to say about Ethereum price prediction. Reports from several top digital media publications highlight bullish sentiments in the short term for Ethereum. For example:
While it’s always good to keep the predictions of experienced analysts in mind, one should never base 100% of their investments on them. As always, it’s good to look at the price history of Ethereum to observe some trends. Combine that with upcoming Ethereum news and utility arguments, you can then decide for yourself whether Ethereum is bullish or not.
As evidenced by the chart above, we can see the price of ETH peaked on May 8th, 2021 with a price of $4,030 USD. What followed was a two-month market correction sparked by a variety of factors such as China banning Bitcoin mining, Elon Musk’s negative comments about Bitcoin environmental issues, and in general, an overleveraged market that was long overdue for a correction.
At the time of writing this article though, we are seeing ETH make a resilient comeback towards $3,000. Will it go any further? The answer to this question may lie in Bitcoin’s price.
In the chart above, you can see the prices of both ETH and BTC are heavily correlated. Since Bitcoin is the number one cryptocurrency, Ethereum and other altcoins more or less tend to follow Bitcoin. So if Bitcoin continues to go up for the rest of 2021, we can expect Ethereum will follow suit.
Now, there are many opinions on whether Bitcoin has more room for growth in 2021 but one of the most popular models gaining traction on social media is the Bitcoin “stock-to-flow” model.
The “stock to flow” model is a number that shows the number of years are required to achieve the current Bitcoin stock at the current production rate. The higher the number, then the higher price.
The formula to obtain these results is SF = stock/flow. Check the chart below to see the current Bitcoin stock-to-flow.
After a brief divergence from the line, we can see the price of BTC is moving back up. If it continues this trend, then it could potentially put the price of BTC at $100,000 or more towards the end of 2021 or during 2022. If that’s true, then the price of Ethereum will surely go up as well. How much exactly is yet to be determined however, keep an eye on Bitcoin’s price in the next several months to see where ETH could be headed.
One of the strongest arguments against Ether as an investment and store of value is the fact that it has an unlimited coin supply. Bitcoin, with its limited supply of 21 million means that it operates on supply and demand principles, making it an excellent store of value such as gold. Until recently, ETH never had that benefit. That’s what the upcoming London upgrade hopes to fix.
London is an Ethereum hard fork that has five Ethereum Improvement Proposals (EIPs), each one suggesting code changes that will hopefully optimize the Ethereum network. EIP 1559 is the one most ETH holders are looking forward to since it will have an impact on ETH supply.
ETH will never have a limited supply cap like BTC however, EIP 1559 includes a mechanism that will gradually curb the total supply growth of ETH over time. To do this, the mechanism burns a variable amount of ETH every time a transaction is executed.
In addition to the supply issue, EIP 1159 will solve transaction wait times and take away fee-market uncertainty to help encourage user adoption of Ethereum dApps. Lastly, EIP 1559 will activate a new feature that requires all payments on the network to be paid in ETH and ETH only. This increased utility will ideally lead to more ETH purchases, thus increasing the price of ETH.
While this all sounds great for Ethereum, EIP 1559 comes with some of its own downfalls as well that may actually end up benefiting Ethereum competitors.
In simple terms, yes. One should always worry about competition. Having tunnel vision and focusing on Ethereum exclusively could backfire later. The fact is, there are plenty of attractive Ethereum competitors and they may look even better after the London upgrade.
One of the major downfalls of EIP 1559 has to do with miner payments. Instead of earning 100% of transaction fees for their work, now miners will only get tips from users using an optional “inclusion fee” paid by users who want to prioritize their transactions.
This could result in angry miners leaving the network for a competing blockchain or creating their own altogether. Binance Smart Chain and Cardano are currently the two largest smart contract platforms outside of Ethereum and they stand to profit the most from frustrated Ethereum miners looking for greener pastures.
If Cardano for example starts to take a notable market share of the smart contract niche, that could spell trouble for the future price of ETH.
History fans know that Ethereum was the catalyst for the 2017 bull run due to hosting thousands of initial coin offerings (ICOs) on the platform. The ICO craze of that year sent the market into a frenzy--albeit not a healthy one. In 2020 though, the market looked a lot different.
This time around, it was decentralized finance (DeFi) that fueled the next bull run. Of course, most DeFi platforms were built on Ethereum and continue to maintain their operations there. Other blockchains offer alternative solutions but Ethereum remains supreme as seen by the image up above.
Aside from DeFi applications, Ethereum is also the most popular platform for non-fungible tokens. The booming NFT market is expected to only grow bigger and if Ethereum can maintain its grasp on this trend, then it certainly bodes well for the future price of ETH. Besides bringing new clients to the crypto market and investors to ETH, DeFi has also pushed Ethereum to consider new layers.
Scalability and high fees are huge problems that were only magnified with the heavy use of DeFi apps on the blockchain. As a result, Ethereum launched the Optimistic Ethereum Testnet. This is a Layer 2 project that aims to improve ETH transactions so they are faster and a fraction of the currency cost.
Ethereum says that
“layer 2 is a collective term for solutions designed to help space applications by handing transactions off the Ethereum mainnet (layer 1). “
If Ethereum has any chance of maintaining its position as the number one DeFi host, then layer 2 is essential for sustainability.
Whether you like it or not, Elon Musk is now a leading figure in the crypto industry. Due to his notoriety, he has an influence on how the general public views cryptocurrency, and when he says something negative about the space, the price tends to reflect that.
Thankfully, Musk is firmly on “team Ethereum” as confirmed by his chat with Twitter CEO Jack Dorsey and American Investor Cathie Wood recently. The surprising news helped boost ETH 10% and beyond immediately after. Whether this was a temporary “PR boost” or a more permanent foundation to a bullish finale is yet to be seen.
That being said, one can’t deny it’s a positive notion to have Elon Musk supportive of Ethereum, especially after his Bitcoin criticism a few months ago. This relationship is an important one to watch in the coming months.
As we’ve discussed in previous price prediction articles, prices always move in waves. It never goes straight up or straight down. Even in bullish or bearish trends, there are waves in both directions. Hence, it’s wise to try and capitalize on these waves as much as possible.
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The future of Ethereum is never guaranteed but you can use these tools to manage your portfolio so you’re prepared for any situation.