Ethereum is Coming to Its Historical Maximum

By: answerout

Ethereum is Coming to Its Historical Maximum


Ethereum made a new all-time high on November 10 at $4,800 per coin. The former high was at $4,500, which happened back on May 12. Following the new all-time high, Ethereum started a downtrend in line with Bitcoin, the market-making alpha cryptocurrency.

Ethereum versus Bitcoin

Bitcoin similarly made its new all-time high on November 10 at $69,000 per coin and started to fall right afterward.  


Historically, Ethereum’s price action has been very closely correlated with Bitcoin. Bitcoin has to date dragged Ethereum and other cryptocurrencies along with itself during both uptrends and downtrends. This is because funds initially entering the crypto market have usually flown into Bitcoin first, which hiked the price of Bitcoin. 


And as soon as Bitcoin is faced with resistance to climb further, money in Bitcoin starts to flow into Ethereum and smaller cryptocurrencies, i.e., the altcoins, and so their prices surge. 


A similar path is observed when money exits the crypto markets. Funds in altcoins usually flow back into Ethereum first, giving it one last surge to the upside, and then completely exit the market by cashing out of Bitcoin.  


This mechanism of cryptocurrency markets has caused Bitcoin to be the most dominant cryptocurrency and Ethereum the second. Due to this hierarchy, Bitcoin should not be on a downtrend for Ethereum to appraise in value.


Ethereum hit a low of $3,500 on December 4 following its November all-time high, and it has been consolidating between $3,600 and $4,200 since then. In contrast with the past trends, ETH to USD converter stood stronger against this recent sell-off, compared to BTC to USD conversion.


Ethereum’s outperforming Bitcoin is evident in the below Ethereum/Bitcoin price parity chart. As you can see in the chart, Ethereum started a strong uptrend against Bitcoin at the end of March 2021 and it managed to triple the ETH/BTC parity price to as high as 0.09 BTC per ETH. 


Even though Ethereum has been trending positively against Bitcoin, further price drops in Bitcoin can eventually drag down Ethereum’s USD price along with itself. If Ethereum fails to close the month and the year by diverging itself positively from Bitcoin, its year-long strong uptrend against the alpha currency may reverse, and its price action may couple with that of Bitcoin over the coming months.

What Could Be Next with Ethereum?

The global economy is facing new uncertainties under the threat of the Omicron COVID-19 variant. All eyes have been on the US Federal Reserve (FED) recently to understand how the Bank will approach interest rates in the year 2022. 


Fear was dominant in the cryptocurrency market during December about the possibility of an aggressive 2022 interest rate hike announcement by the FED in response to rising inflation rates throughout the world. 


Rising interest rates have historically been bearish for crypto markets. Even the prospect of it was able to drop Ethereum’s price by more than 10% back on Monday, December 13.


In contrast with the expectations, the FED announced a plan of only three interest rate hikes for 2022, which was received positively by all markets, including Ethereum. Developments in the coming days will tell us whether Ethereum will realize a new record high price above $4,800 per coin. 


Institutional On-Chain Interest for Ethereum 

Institutional interest for Ethereum hiked in 2021 due to its emerging applications in the decentralized finance (Defi) and non-fungible token (NFT) fields. 


Although Ethereum experienced minor outflows from its blockchain during the last two months of 2021, the total value locked in the platform has reached $158 billion as of year-end, up from only $18 billion year-over-year. The amount of Ether coins locked in smart contracts also reached an all-time high of 30% by the end of 2021.


A higher amount of Ethereum value being locked and used in smart contracts points to a diminishing available supply in the ecosystem. As a matter of fact, the lower liquid Ethereum supply has already managed to spike the price of Ethereum by about 10-fold since the end of 2020. 

Essential Upgrades for Ethereum in 2022

Ethereum spent the year 2021 upgrading to its new Proof-of-Stake (PoS) blockchain, the Ethereum 2.0. This migration process will continue throughout 2022. To complement this process, Ethereum made a hard fork (the London fork) back in August 2021, which now burns miner rewards instead of adding them into circulation. A lower supply figure is expected to consequently appreciate the value of Ethereum as its user base is continuously growing.


The other important upgrade that could help appreciate the value of Ethereum in 2022 is the Altair upgrade, which was first activated on the Ethereum network in October 2021. The Altair upgrade marks the start of Ethereum 1.0’s transition to the Beacon Chain, which is the proof-of-stake (PoS) block mining for Ethereum 2.0. The merger with the Beacon Chain is expected to finalize in 2022. 


In January 2022, the Arrow Glacier upgrade is also expected to be launched, which seeks to increase the mining difficulty in Ethereum’s current proof-of-work (PoW) blockchain in an effort to decrease the reward emissions further. The Arrow Glacier protocol will be in effect for six months only, until June 2022, the expected date for Ethereum 2.0 to go fully live. 

What You Should Do with Your Ethereum Investment

As is the case with any investment, there will be ups and downs in the price of Ethereum.  The latest all-time high price of $4,800 will unlikely reduce Ethereum’s volatility going forward.


The biggest question that investors have in mind, though is whether Ethereum will be able to continue its exponential gains in 2022. As discussed, this depends on a number of factors like interest rates, liquidity of markets, and the price of Bitcoin. Due to such a large number of variables and to the notorious price volatility of cryptocurrencies, experts generally advise never to invest more than 10% of your capital in cryptocurrency. In that sense, you should never invest more than you can afford to lose, and the best thing you can do following that is to ignore the hypes in the market and patiently watch your investments grow. 


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