Ether (ETH) has experienced a significant surge in price, outperforming the overall cryptocurrency market by 14% in the past month. Although it has been unable to sustain levels above $4,000, Ether has reached its highest price in over two years, closing the gap with Bitcoin (BTC) in terms of price.
Some traders believe that Ether’s bull run is primarily due to the anticipation of the approval of a spot Ethereum exchange-traded fund (ETF), which could result in a “sell the news” scenario if the event is fully priced in. The U.S. Securities and Exchange Commission is expected to make a final decision on the matter by May 23, with Bloomberg analysts estimating the odds of approval at 35%.
There are other factors contributing to the recent price gains as well, such as the upcoming Dencun network upgrade scheduled for March 13. This upgrade is expected to significantly reduce transaction fees on the Ethereum network’s scaling solutions, addressing a long-standing issue. The average Ethereum transaction fee has been $4 or higher since November 2023.
Critics of Ether argue that while Bitcoin reached an all-time high on March 12, Ether is still 19% lower than its peak in November 2021. However, Ether’s current market cap of $480 billion places it among the top 20 tradable assets globally, surpassing companies like UnitedHealth and ExxonMobil, which have posted profits of $22.4 billion and $36 billion respectively in the past year.
Investors in Ether can earn a 4% yield by participating in 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 Ethereum ecosystem has a positive impact on Ether’s price since ETH is required for validating and processing transactions on the base layer and is also used as collateral in certain decentralized applications (DApps).
Recent data confirms the dominance of the Ethereum network, especially when layer-2 solutions are taken into account. Despite transaction fees reaching $20 or more, the Ethereum base layer has accumulated nearly 590,000 active addresses, and its volumes continue to grow. However, a more detailed analysis is needed to determine if this growth is limited to a few projects due to airdrops or other factors that may have driven short-term demand.
The data also shows consistent growth in major decentralized exchanges (DEX) and aggregators, but the performance of nonfungible token (NFT) marketplaces has been slightly disappointing. This suggests that Ethereum network usage is not particularly promising, as even the tenth-largest DApp on the Ethereum network, ParaSwap, had only 7,100 active addresses in the past week. In comparison, the tenth-largest DApp on the BNB Chain, Jumper Exchange, had 36,500 active addresses in the same period.
Professional traders are bullish on Ether, but there is a concern about excessive leverage. To determine whether professional traders are skeptical about Ether breaking $4,000 and becoming support, one can analyze the Ether futures market. In neutral markets, monthly futures contracts should trade 5% to 10% higher than regular spot markets to account for the extended settlement period.
The Ether annualized futures premium, known as the basis rate, reached its highest level in over 18 months on March 11. Levels above 25% typically indicate excessive optimism, but it doesn’t necessarily imply an immediate risk as traders can seek alternative funding methods. Additionally, the high premium attracts arbitrage investors who short the futures while simultaneously buying spot ETH, thereby balancing the equation in the medium term. However, the longer it takes for Ether to break above $4,000 while the futures premium remains high, the higher the risk of a sell-off becomes.
It is important to note that this article is for general information purposes only and should not be considered as legal or investment advice. The views and opinions expressed here are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.