Just a few days ago, Ethereum set a new record. If the second largest cryptocurrency keeps up the pace, the brand could soon be razed to the ground.
When the Bitcoin rally shifts down a gear, the Ethereum hour strikes again. In alternation, the two largest cryptocurrencies are currently defeating one record after the other. Only a few days ago, Ethereum reached a new all-time high, which could, however, be renewed soon at the current pace.
At press time, Ethereum is trading at $ 1,419, just 1.1 percentage points below its all-time high. On a daily basis, the second-largest cryptocurrency gained 7.2 percent and thus posted a weekly plus of 7.4 percent.
Since the beginning of the year alone, the Ethereum rate has almost doubled. The remarkable performance is initially due to different dynamics, which, however, are mutually dependent on second glance and continuously rock the price.
First of all, the rally is the result of an increasing ether allocation from retail and institutional investors. As the following graphic from Glassnode shows, the number of wallets holding 0.1 or more Ether or 10,000 or more Ether has risen steadily since November last year with few setbacks.
The Ethereum search behavior on Google also shows an increasing interest among small investors. Although the trend has corrected somewhat downwards since the second half of January, it remains at a strong level compared to the previous year.
Meanwhile, the recently published annual report of the crypto exchange Coinbase suggests that Ethereum is increasingly establishing itself as a popular asset class among large investors. Institutionalists are gradually recognizing the value storage qualities of the second largest cryptocurrency and are increasingly shifting assets into it. In addition, over the years, an understanding of the synergetic network effects has matured, which ultimately leads to a far-sighted ether accumulation by wealthy investors.
The increasing demand among private and professional investors meets an ever-decreasing supply. At the beginning of August 2020, the supply held by exchanges amounted to almost 19 million ethers. Currently, the stock exchange reserves have fallen to around 15.4 million ethers — a decline of 19 percent in six months.
In the same period, the ether supply integrated into smart contracts rose by 50 percent, from 12.5 to 18.8 percent. There is a close correlation between the two key figures — supply melt on the stock exchanges on the one hand and increasing smart contract integration on the other, which acts as a permanent price driver. Smart-contract-based DeFi applications, in particular, turn out to be constant consumers of large quantities of ether. According to defipulse, 7.2 million ethers are already integrated into DeFi applications.
Last but not least, the developments on Ethereum 2.0 are in full swing. According to beaconcha.in, the network already has over 77,000 validators who have staked a total of over 2.4 million ethers. While phase 0 is still ongoing, validators cannot transfer their stake. Only with the transition to phase 1, which, according to developer Danny Ryan, could occur in the second half of the year, validators can migrate their stake from the beacon chain to the Eth2 chain. Until then, the ether stocks will become scarce due to the swelling staking pot.
So it can be said: The course rally is catalyzed by various dynamics that are currently colliding. Increasing demand among very different types of investors meets increasing shortages, which are exacerbated by DeFi applications and the staking test run. In view of the DeFi development and high staking demand, this imbalance is unlikely to normalize in the coming months either.
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