Ethereum 2.0 is approaching and DeFi lock-ups increase, and the fundamentals of Ethereum are consolidating.
Original title: “Ethereum fell 30% against Bitcoin in two months, four major reasons supported its price rebound”
Written by: Joseph Young
Between September 1 and October 1, the price of Ether against Bitcoin dropped by 10.34%. On Binance, the price of the ETH/BTC trading pair dropped from 0.037237 BTC to 0.033385 BTC. In the face of the dominant BTC, it is difficult for ETH to find upward momentum. There are obvious reasons behind the poor performance of the latter in the past two months, but it is recovering.
There are three main reasons for the stagnation of ETH.
First of all, most of the trading volume in the crypto market flows to Bitcoin, which divides the trading volume of other tokens (including ETH) in the crypto market.
Secondly, Ethereum and decentralized (DeFi) tokens fell simultaneously in the context of the massive correction of the entire altcoin market.
Finally, there is uncertainty surrounding ETH 2.0 and whether it can be completed by the end of the year.
But since then, the situation seems to have improved. During the three days from November 3rd to 5th, ETH rose by about 9%, showing an upward momentum. Basically, after the co-founder of Ethereum Danny Ryan announced the release of the ETH 2.0 deposit contract, ETH began to rebound. In addition to the upcoming ETH 2.0 mainnet, the DeFi market is still strong, and ETH has also shown positive signs on the long-term chart including monthly candlestick charts.
Next, this article will analyze the recent rise of ETH from four aspects:
Reason 1: ETH 2.0
On November 5, 2020, Buterin officially announced the release of the ETH 2.0 deposit contract. This confirms the ETH 2.0 network upgrade to be launched in the near future, and the current expected activation date is December 1, 2020.
ETH 2.0 coordinator Danny Ryan said, “Today, we released the 1.0 version of 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 start no earlier than 12 o’clock in the evening UTC on December 1, 2020.”
Whether in the long-term or short-term, ETH 2.0 is a positive catalyst for the price of Ethereum. This upgrade will shift Ethereum from a Proof of Work (PoW) algorithm to a Proof of Stake (PoS) algorithm. This shift eliminates miners from the network and enables users on the Ethereum blockchain to collectively verify transactions.
Users confirm transactions through a process called “staking” (staking). Essentially, the term “staking” refers to the allocation of user funds to the ETH 2.0 contract. When users pledge ETH, this part of ETH cannot be transferred or used, but users can choose to withdraw at any time.
The arrival of the staking mechanism can benefit the price of ETH mainly from two aspects. Participating in staking requires at least 32 ETH, so it may encourage users to buy more ETH so that they can get rewards through staking. If many users choose to pledge ETH, it will reduce the ETH circulating on the exchange and reduce the selling pressure.
Within one hour after Buterin officially confirmed the launch of ETH 2.0, the price of ETH increased by 3.7%. Since then, the price of ETH against the US dollar has continued to rise, achieving a 3.1% increase since the official announcement.
So far, the market and community sentiment surrounding ETH 2.0 has been absolutely positive. Joseph Lubin, co-founder of Ethereum and founder of ConsenSys, emphasized the complexity of this upgrade. He said:
“Coordinating the creation of ETH 2.0 is by no means a simple task-it involves 5 different client teams, researchers, auditors, and testnet verifiers, ETH 2.0 economists, and security experts sharing the key Knowledge. @dannyryan, superb execution.”
Reason 2: The total value of DeFi protocol lock-in is still very high
In addition to the high expectations for ETH 2.0, the 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 of DeFi lock-up (TVL) has exceeded US$12.05 billion.
Although the prices of major DeFi tokens have fallen by about 50% recently, the high TVL in the DeFi agreement indicates 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 at the peak of the DeFi boom, the Ethereum blockchain was unable to meet the demand for overload. The chain has become very congested and transaction fees have skyrocketed.
Currently, the Ethereum blockchain network can process 15 transactions per second. After ETH 2.0 goes online, Buterin said that the network will be able to process 1,000 to 5,000 transactions per second.
If a new DeFi cycle is ushered in after the launch of ETH 2.0, it will greatly increase the number of transactions that Ethereum can process per second and improve the overall user experience.
Reason three: technical structure under the long-term framework
Since September, relative to BTC, ETH prices have fallen into a stagnation phase. But this also caused ETH to consolidate above the key moving average on the monthly candlestick chart.
The monthly candlestick chart is a long-term frame chart used by traders to observe the macro and long-term trends of an asset. Since 1 candle reflects the entire month’s trading activities, the monthly candlestick chart can cover trading activities within a few years.
Ethereum’s monthly candlestick chart shows that the opening price of November is just above the 5-day moving average. Consolidation above the key short-term moving average, especially on the long-term chart, indicates that the medium and long-term outlook for ETH is bullish.
Reason 4: DEX volume shows that ETH still has upside
In addition to the favorable technical structure, the fundamentals of ETH also indicate that the token has room to rise. According to the data provided by cryptofees.info, the average weekly fee on the decentralized exchange (DEX) remained at a relatively low level compared to September and October.
For part of October, the daily handling fee of the largest DEX on Ethereum — Uniswap — even exceeded that of Bitcoin. This shows that the user activity level on DEX and DeFi is quite high.
However, since September, as DeFi has fallen into a downturn, the cost of DEX has dropped significantly. Although Uniswap’s daily transaction fees reached 668 million U.S. dollars, other DEX including Sushiswap and Balancer received only about 100,000 to 130,000 U.S. dollars per day.
Although the users of DEX and DeFi have decreased, the fundamentals of ETH are being consolidated, especially because of the positive impact of ETH 2.0. Considering that ETH has begun to rebound during a period of relatively low user activity, it is likely that it will have additional room for growth in the near future.
Source link: www.longhash.com
