What is Ethereum?
While bitcoin and Ethereum both rely on permissionless blockchain technology, the similarities pretty much end there. Where bitcoin is a peer to peer network that facilitates the exchange of digital coins, the Ethereum network allows us to exchange anything on value.
The main difference lies in the implementation of smart contracts, which turns the Ethereum blockchain into a distributed supercomputer. Thanks to these self-executing protocols, the network allows us to deploy decentralized applications and various financial products.
For instance, developers can use protocols such as ERC-20 to create alternative cryptocurrencies that run on the Ethereum network. This application of smart contracts is viewed as the main trigger of the 2017 bull run. With anyone being able to release their own cryptocurrency, it launched the ICO craze which ultimately led to the first crypto bubble.
While some of these projects have since disappeared, many remain active in the cryptocurrency ecosystem. In fact, some of the most popular cryptos such as Chainlink, TetherUSD, and Vechain (among many others), are ERC-20 tokens.
Furthermore, the native ETH token can be used as a currency just like bitcoin. However, its main use is to pay the fees of the blockchain whenever smart contracts or dApps are deployed.
For the time being, nodes validate transactions on the Ethereum network through a proof-of-work (PoW) consensus method. However, due to the speed limitations and extreme power requirements of this verification mechanism, the network is currently shifting towards a more efficient proof-of-stake (PoS) consensus.
This important update, called ETH 2.0 brings many additional features to the Ethereum network. Learning about them is crucial in understanding our Ethereum price prediction.
The evolution to ETH 2.0
As we previously mentioned, PoW blockchains have a glaring weakness - they scale very poorly with increased traffic. This flaw became even more apparent with the release of the Cryptokitties collecting game in late 2017.
With thousands of users flocking to the network simultaneously, the success of the game slowed transaction verifications to a crawl. Developers had to come out with a temporary solution and artificially increase the number of transactions per second.
To allow the Ethereum network to become a global virtual computer for the masses, the protocol had to change fundamentally. Luckily, developers were already working on the crucial ETH 2.0 update.
Ethereum 2.0 changes
In the next couple of years (2021-2022), the ETH 2.0 update will introduce scaling and security improvements to the network through the following mechanisms:
PoS consensus - with the current PoW consensus, the network can validate about 30 transactions per second. Once the switch to PoS is made, this number should grow to 100.000.
Sharding - this method involves splitting the existing blockchain into smaller pieces, which would enable it to handle more users and transactions simultaneously. Shard chains make it easier to run a node and keep hardware requirements low.
In short, Ethereum is well-set to become the smart contract powerhouse it was supposed to be by providing cheaper, faster, and more secure transactions.
Before we delve more into the details of our Ethereum price prediction, let us throw a quick glance into the past price action of the ETH token.
Ethereum historical price analysis 2017-2021
Experts believe that markets work in cycles, positive and negative. Taking a look into the past can bring valuable lessons on how to detect upcoming cycles, and allows us to predict profit-making scenarios while avoiding getting caught in a bubble. Below is a visualization of Ethereum’s market cycles in the past 4 years. Let us analyze them briefly.
2017 bull market - 2017 was the craziest period in Ethereum’s existence. From the beginning of the year until the peak in December 2017, the price rose from $20 to $1400, a staggering 17.000% increase in value.
2018 bear market - Once the ICO bubble burst, things weren’t looking too hot for Ethereum. In 3 months, the price tumbled down to $350, decreasing by 75% from the all-time high. A glimmer of hope in the spring drove prices back up by 130%, only to see them retrace way down to $80, for a total of 95% decline in 1 year.
2019 recovery and retracement - 2019 was another year of ups and downs for ETH. In the first semester, the market was extremely bullish and gained 420% by the end of June. However, the coin failed to break the $350 resistance level and retraced back to $120, losing 60% value in the process.
2020 bull run - last year, things were falling in place for the #1 smart contract blockchain in the world. Despite the coronavirus market crash in March, the price has been in a continuous upward momentum, rivaled only by some of the best periods of 2017. To date, the ETH token has gained more than 1000% since January 2020.
ETH in 2020 - a year in review
2020 was an exceptional year for ETH, and a detailed view of the price movement will give us a good basis for our Ethereum price prediction.
2020 bull run kickoff and COVID19 crash
ETH exceeded expectations at the beginning of the year. After coming out of a 60% retracement in the second half of 2019, prices rallied 140%. Many viewed this price surge as the long-awaited trigger to a new bull market in the crypto industry.
However, as prices reached $285, the coronavirus pandemic had other plans for the market. All the markets on the globe tanked, and ETH followed with a 70% crash, reaching as low as $90 in the middle of March 2020.
Recovery and DeFi bubble
Fortunately, the crypto market began recovering almost immediately after reaching the bottom in March. By the middle of the summer of 2020, ETH price had already rallied 180%, hitting resistance at $150.
Following the DeFi hype, the candles broke the pre-crash levels by August and rallied another 100% reaching as high as $490 by mid-September.
With that said, the excitement over DeFi projects quickly waned down, and Ethereum retraced 35%, bottoming out at $310.
Acceleration of price rally and breaking of ATH
Over the remainder of the year, ETH’s price steadily increased by 145%, reaching as high as $750.
This trend picked up the pace as soon as we entered 2021, increasing by 100% in only two weeks, finally breaking the legendary 2017 ATH level.
Recently, the candles have been following a bullish Fibonacci channel, but with much higher volatility than before. Since January 2021, we’ve been able to observe regular price fluctuations of +-30% in the span of a few days.
ETH price prediction - price-influencing factors
There seems to be a general misconception about the current bull run among many crypto community members. It often gets compared to the 2017 price rally which implies that we should expect a bubble pop in the near future.
However, our opinion is quite different. There is an abundance of factors that are telling us that this bull run is very different and might result in an even greater price increase than before. While a bearish cycle is inevitable down the road, many macroeconomic indicators point toward better conservation of value than what we’ve seen previously. Let’s check these out.
The absence of ICOs - fundamentals remain
In 2017, the price increase of Ethereum was mainly driven by the proliferation of ICOs.
The process was simple - project leaders offered their new, shiny tokens with the promise of incredible returns in exchange for ETH. Investors took the bait and demand for ETH skyrocketed, driving the prices to insanely high levels. People were throwing money at anything crypto-related, without conducting due diligence.
Once the teams started unloading their Ethereum on the market and taking profits, prices plummeted and took the entire market in a downward spiral.
Today, ICOs are long gone. The only thing slightly resembling them are IEOs, which are token sales conducted by crypto exchanges. The main differences are that exchanges scrutinize projects very closely before listing them, and participants don’t have to use ETH to participate in the sale.
From this, we can draw the conclusion that unlike in 2017, the current price isn’t artificially inflated. It is instead based on strong fundamentals, increased demand, and delivering on promised updates.
As a result, witnessing another 95% drop in value, while not impossible (this is crypto after all), is highly unlikely.
Ethereum breaking ATH - uncharted territory
Another influential factor in our Ethereum price prediction is the breaking of the USD all-time high in January 2021.
When an asset reaches breaks an ATH level, we are literally entering uncharted territory. The momentum dynamics shift towards extremely favorable, as there are no holders that are at loss anymore.
With Ethereum, this milestone is even more important. When the bubble burst in 2017, the price retraced by 95% from this level. Many had discarded Ethereum as a dead project, as chances to return to the $1400 levels were looking slimmer by the day.
By reaching the ATH level, Ethereum has proven to both naysayers and supporters that it is much more than just a bubble.
However, there are still some invisible barriers to keep in mind:
Stoppage levels - there are still some hidden hurdles to watch, such as market sentiment or hidden resistances on the Fibonacci levels.
Once the initial phase of settling the price above the ATH is over, we can expect to see considerable gains of 200-300% in less than a few months.
The candles are yet to reach the ETH/BTC ATH
While the ATH in USD has already been surpassed, ETH is still far behind in BTC value from 2017 levels. 250% lower, to be exact.
The bull run in BTC value is just beginning. As such, another growth of at least 250% is to be expected in the near future. Breaking this point would trigger another leg up, as previously indicated.
ETH 2.0 staking and staking pools
With the release of the ETH 2.0 update, interested parties can become validators by staking 32ETH and gain up to 10% of passive income for providing their services.
However, with Ethereum prices soaring, this can seem like a steep price of entry. Luckily, we will likely see the emergence of staking pools that will allow users to stake their ETH without a lower limit of coins.
Popular platforms such as Kraken and Binance are already offering centralized staking services. Decentralized solutions such as Rocket Pool and Ankr will be available as well, for those that wish to keep full control of their crypto.
If the staking trend picks up, we will not only see the demand for ETH increase, but the circulating supply should simultaneously decline. Such an event should drive prices even higher.
ETH leaving exchanges to be used for staking - upcoming liquidity crisis?
Similar to bitcoin, Ethereum tokens have been massively leaving exchanges, to be stored in cold storage.
Whatever the reason behind this move (staking, security issues) it’s becoming clear that the HODLing trend is getting widely accepted. As a result, we might be facing an ETH liquidity crisis in the upcoming months.
This is an incredibly bullish perspective, as the increased scarcity could make prices skyrocket suddenly, even though demand remains unchanged. Investors might even wait for prices to reach $5.000 to $10.000 before they are compelled to sell.
ETH in 2020 resembles BTC in 2017
According to acclaimed investor and analyst Raoul Pal, ETH price follows an exact pattern compared to BTC 5 years ago. In his analysis, he cites Metcalfe’s law, which explains the exponential growth of various networks. To make his point, he compares some key metrics of both bitcoin and Ethereum, such as:
Market cap growth
Active addresses growth
Price action on a logarithmic scale
The similarity between these benchmarks is uncanny, with the exception of Ethereum’s current market cap surpassing that of bitcoin 5 years ago. This makes a great case for his Ethereum future price prediction which places ETH at $20.000 by the end of this bull run. Check out his Twitter thread below for more details on his reasoning.
ETH gaining traction thanks to real use cases
Our Ethereum forecast would be incomplete without mentioning the various use cases that the network will be able to provide on a massive scale with the ETH 2.0 update:
DeFi - the DeFi ecosystem has seen a growth of 2500% of funds locked in 2020, and this trend doesn’t seem to be slowing down.
DEX - a bi-product of DeFi, decentralized exchanges are gaining more clout by the day. After Ethereum switches to a PoS model, high gas fees should become a thing of the past, boosting their adoption.
NFTs - as attested by investor and bitcoin guru Anthony Pompleano, it’s expected for non-fungible tokens to become one of the leading consumer use-cases of the Ethereum blockchain. With its exponential growth, the digital art ecosystem has exceeded all expectations in 2020, and the trend should grow further in the next year.
Ethereum price prediction 2021
By sticking to our reasoning from the former chapter, we can finally reveal our Ethereum price prediction of 2021.