Since the beginning of 2021, Bitcoin's dominance in the market has dropped by half. One of the reasons why this happened is that today investors are willing to take more risks in search of profits. That is why they are increasingly turning to altcoins.
Among alternative currencies, the most ambitious is the Ethereum coin, the second most significant asset in terms of capitalization, which was created by Vitalik Buterin. Today we will analyze the ETH behavior and figure out what affects its rate in the current year.
What factors can influence the ETH rate?
In May of this year, Ethereum reached its ATH at a bit over $4,000. After that, the altcoin rate corrected, but it still has perspectives for further growth.
Ethereum price. Sourse: Coinmarketcap.com
At the moment, the Ethereum project is undergoing changes that will make it even more decentralized and secure. This attracts investors and traders from both the institutional and retail worlds.
Thus, we can conclude that the following factors can positively affect the ETH rate in 2021:
Upcoming network update. Ethereum 2.0 is a solution that will scale the original blockchain and make it more user-friendly. The main feature of the update is the transition of the network to staking and the exclusion of miners.
The launch of the updated Ethereum blockchain may lead to an increase in its investment attractiveness and, as a result, the ETH price boost.
Positive news background. News, statements, and regulatory reports on cryptocurrencies are powerful price triggers. Many crypto projects are wary of reports from the US Securities and Exchange Commission (SEC), which has a harshly negative stance towards cryptocurrency. In the meantime, the SEC is silent, so the asset price continues to rise with minor adjustments.
Interest from institutional players. In February 2021, the Chicago Mercantile Exchange (CME) launched Ethereum futures. The increase in trading volume on the CME prompted retail traders to buy aggressively. The Bank of France recently bought Ethereum-based e-bonds for the digital euro within the pilot test, and the Brazilian Securities Commission (CVM) approved the launch of an Exchange Traded Fund (ETF) based on the second-largest cryptocurrency by market capitalization.
It can be concluded that more and more institutional investors support Buterin's blockchain, and this affects the growth of ETH.
Demand for DeFi services. Decentralized finance projects are mostly based on the Ethereum blockchain. And the demand for such solutions will only grow since they are implemented without intermediaries and controllers.
DeFi is helping Ethereum grow the market by reducing Bitcoin's dominance and attracting more investors to ETH. This makes the price of the asset rise inexorably.
Revival of the NFT trend and gaming projects. Non-fungible tokens and assets of gaming crypto platforms operate on different blockchains, but many of them are based on Ethereum.
For example, Enjin Coin, the token of the ecosystem of digital products for trading and monetizing games, is gaining popularity, as well as MANA, an asset of the decentralized world of virtual reality Decentraland, which allows users to create and monetize content and applications.
There is also a growing demand for IQN gaming token integrated into the IQeon.com platform. It allows players to receive rewards for their gaming abilities.
On the game platform, you can get IQN for free in the section with bonus tasks.
The growing popularity of such projects helps to strengthen loyalty to Buterin’s creation and, accordingly, increases the ETH rate.
Partnerships. In January 2021, the Ethereum Foundation partnered with Reddit, one of the largest forums. Together, the companies are introducing Community Tokens, a digital currency that is issued to members of some subreddits for their active participation in the life of the community.
Collaborations like this are undoubtedly reflected in the value of ETH, pushing it up.
Could ETH become a competitor to BTC?
The confrontation between the two cryptocurrencies is already a reality. Until recently, ETH investors took into account the dynamics of the ETH/BTC pair to make their forecast. However, Ethereum showed independence from fluctuations in the price of the oldest asset, and in April 2021, despite Bitcoin’s bearish trend, it went up.
There are several significant differences between Bitcoin and Ethereum. The main one is that the emission of the latest is not limited, which is why the potentials of the two digital assets are not equal. Unlimited coin issuance devalues the currency over time, which gives Bitcoin a compelling advantage.
But despite this, many analysts and even institutional players note the superiority of ETH over other cryptocurrencies. For example, JPMorgan experts consider stable liquidity and less dependence on the derivatives market to be the main advantages of the first altcoin. And Anthony Scaramucci, the founder and managing partner of SkyBridge Capital investment company, believes that in the BTC and ETH battle for supremacy the latter will become the best store of value after the launch of Ethereum 2.0, as enthusiasts will be able to make money by storing cryptocurrency in wallets.
But in reality, time will tell whether ETH will hit the new ATH, whether this price will be stable and how the altcoin will behave in relation to BTC.