Ethereum fell 30% against Bitcoin in two months, four reasons support its price rebound
From September 1st to October 1st, the price of Ether/Bitcoin fell by 10.34%. On Binance, the price of the ETH/BTC trading pair fell from 0.037237 BTC to 0.033385 BTC. In the face of the dominant BTC, it is difficult for ETH to find upward momentum. The latter has obvious reasons behind its poor performance over the past two months, but it is recovering.
There are three main reasons for ETH’s stagnation.
First of all, most of the trading volume in the encryption market flows to Bitcoin, which takes away the trading volume of other tokens (including ETH) in the encryption market.
Second, Ether and decentralized (DeFi) tokens fell in tandem against the backdrop of a massive pullback across the altcoin market.
Finally, there is uncertainty surrounding ETH 2.0 and whether it will be completed by the end of the year.
But things appear to have improved since then. In the 3 days from November 3rd to 5th, ETH rose by about 9%, showing an upward momentum. Basically, ETH rallied after Ethereum co-founder Danny Ryan announced the release of the ETH 2.0 deposit contract. In addition to the upcoming ETH 2.0 mainnet release, the DeFi market remains strong and ETH is showing positive signs on long-term charts including the monthly candlestick chart.
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Reason 1: ETH 2.0
On November 5, 2020, Buterin officially announced the release of the ETH 2.0 deposit contract. This confirms the upcoming ETH 2.0 network upgrade, with the current expected activation date of December 1, 2020.
ETH 2.0 Coordinator Danny Ryan stated, “Today, we released version 1.0 of the ETH 2.0 details, including the mainnet deposit contract address — 0x00000000219ab540356cBB839Cbe05303d7705Fa. ETH 2.0 will have a MIN_GENESIS_TIME of 1606824000 — this unix Timestamp means, ETH 2.0 will be launched no earlier than 12:00 PM UTC on December 1, 2020."
ETH 2.0 is a positive catalyst for the price of Ethereum, both in the long and short term. This upgrade will move Ethereum from a proof-of-work (PoW) algorithm to a proof-of-stake (PoS) algorithm. This shift eliminates miners from the network, allowing users on the Ethereum blockchain to collectively validate transactions.
Users confirm transactions through a process known as "staking." Essentially, the term "staking" refers to the allocation of user funds to ETH 2.0 contracts. When a user pledges ETH, this part of ETH cannot be transferred or used, but the user can choose to withdraw at any time.
The arrival of the Staking mechanism can mainly bring benefits to the price of ETH from two aspects. A minimum of 32 ETH is required to participate in staking, so it may encourage users to buy more ETH so that they can earn rewards through staking. If many users choose to pledge ETH, it will reduce the ETH circulating in the exchange and reduce the selling pressure.
Within an hour of Buterin's official confirmation of the launch of ETH 2.0, the price of ETH rose by 3.7%. Since then, ETH has continued to rise against the US dollar, achieving a 3.1% gain since the official announcement.
Market and community sentiment around ETH 2.0 has been overwhelmingly positive so far. Ethereum co-founder and ConsenSys founder Joseph Lubin highlighted the complexity of the upgrade. He said:
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Reason 2: The total value locked in DeFi protocols is still very high
In addition to high expectations for ETH 2.0, positive sentiment towards DeFi is also a positive factor. According to data provided by Defipulse.com, as of the time of writing, the total value locked (TVL) in DeFi has exceeded $12.05 billion.
Although the prices of major DeFi tokens have all fallen by about 50% recently, the high TVL in DeFi protocols shows that the demand for DeFi products has not been affected.
ETH 2.0 can help DeFi because it improves the transaction capabilities of the Ethereum blockchain. Throughout September, especially during the peak period of the DeFi boom, the Ethereum blockchain has difficulty meeting the overloaded demand. The chain became very congested and transaction fees skyrocketed.
Currently, the Ethereum blockchain network is capable of processing 15 transactions per second. By the time ETH 2.0 goes live, Buterin said the network will be able to handle 1,000 to 5,000 transactions per second.
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Reason 3: Technical structure under the long-term framework
Since September, the price of ETH has stagnated relative to BTC. But it also caused ETH to consolidate above key moving averages on the monthly chart.
Monthly candlestick charts are long-term frame charts that traders use to observe the macro and long-term trends of an asset. Since 1 candle reflects an entire month of trading activity, a monthly candlestick chart is able to cover several years of trading activity.
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Reason 4: DEX trading volume indicates that ETH still has room to rise
In addition to the favorable technical structure, ETH’s fundamentals also suggest that the token has room to rise. According to the data provided by cryptofees.info, the weekly average handling fees on decentralized exchanges (DEX) remained relatively low compared to September and October.
For part of October, the largest DEX on Ethereum — Uniswap — even surpassed Bitcoin in daily fees. This shows that the level of user activity on DEX and DeFi is quite high.
Since September, however, DEX fees have dropped significantly as DeFi has slumped. While Uniswap's daily transaction fees reached $668 million, other DEXs, including Sushiswap and Balancer, only received about $100,000 to $130,000 in daily fees.
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