Is Ether’s $4K Price Surge Sustainable or Just a Fad?

Ether (ETH) has seen a 58% surge in price over the past month, surpassing the performance of the wider cryptocurrency market by 14%. Despite being unable to maintain levels above $4,000, Ether has reached its highest price in over two years, closing the gap with the dominant cryptocurrency, Bitcoin (BTC), during this period.

How is web 3.0 different from web 2.0?

Web 3.0 and web 2.0 have distinct differences. One of the latest developments in the crypto world is Gala (GALA), while Helium (HNT) is another recent addition. Both are part of the global crypto market, which is constantly evolving. As the world of crypto continues to grow, there is an ongoing battle for dominance among various crypto funding sources and aggregators.

Is the current surge in Ether’s price a result of optimism surrounding the potential approval of a spot Ethereum ETF?

Some traders believe that the recent bullish trend in Ether is solely due to speculation about the approval of a spot Ethereum exchange-traded fund (ETF). This could potentially lead to a “sell the news” scenario if the event is fully priced in, especially in the initial weeks. The U.S. Securities and Exchange Commission is expected to make a decision on the matter by May 23, with Bloomberg analysts estimating the chances of approval at 35%.

However, there are other factors at play that have contributed to Ether’s recent price gains. One of these is the upcoming Dencun network upgrade on March 13, which is expected to significantly reduce transaction fees on the Ethereum network. This has been a long-standing issue for the network, with the average transaction fee remaining at $4 or higher since November 2023.

Critics of Ether point out that while Bitcoin reached an all-time high on March 12, Ether is still 19% below its peak in November 2021 at $4,870. However, with a current market cap of $480 billion, Ether is now among the top 20 global tradable assets, surpassing companies like UnitedHealth and ExxonMobil. For comparison, these companies reported profits of $22.4 billion and $36 billion respectively in the last 12 months.

Ether investors also benefit from a 4% yield through the network’s proof-of-stake consensus, but the demand for ETH largely depends on the activity within the Ethereum ecosystem. Even though some transactions occur on the second layer, the growth of the ecosystem ultimately has a positive impact on Ether’s price, as ETH is used for validating and processing transactions on the base layer, as well as collateral in certain decentralized applications (DApps).

The latest data clearly shows the dominance of the Ethereum network, especially when taking into account layer-2 solutions. Even during times of high transaction fees, the base layer has maintained nearly 590,000 active addresses and continues to see growing volumes. However, a closer look is necessary to determine if this growth is limited to a few projects due to airdrops or other temporary factors that may have driven short-term demand.

Data also reveals consistent growth across major decentralized exchanges (DEX) and aggregators, although the numbers for non-fungible token (NFT) marketplaces were slightly underwhelming. In essence, the current usage of the Ethereum network is not particularly promising, as the tenth-largest DApp, ParaSwap, only had 7,100 active addresses in the past week. In comparison, the tenth-largest DApp on BNB Chain, Jumper Exchange, had 36,500 active addresses during the same period.

Ether pro traders remain optimistic, but caution is needed due to high leverage

To determine the sentiment of professional traders towards Ether potentially surpassing $4,000 as a support level, it is important to analyze the Ether futures market. In normal conditions, monthly futures contracts should trade 5% to 10% higher than regular spot markets to account for their longer settlement period.

The Ether annualized futures premium, also known as the basis rate, reached its highest point in over 18 months on March 11. A premium above 25% typically indicates excessive confidence, but not necessarily an immediate risk as traders can seek alternative funding methods when needed.

Additionally, the high premium attracts arbitrage investors who may short the futures while simultaneously buying spot ETH, helping to balance out the market in the medium term. Despite the bullish sentiment of pro traders, the longer it takes for Ether to break above $4,000 while the futures premium remains high, the greater the risk of a potential sell-off.