3 Reasons Ethereum (ETH) price is close to breaking the $2.5K resistance this week
Ether (ETH), the native token of the Ethereum network, has increased by 5.5% since December 27, although it failed to break above the $2,400 resistance. Traders are now asking what is driving the price of Ether and whether these things are worth it.
Ether price hit a 19-month high as traders await a rally above $2,500.
The high of $2,446 on December 28 was last seen 19 months ago. This increase came as the broader cryptocurrency market capitalization remained flat at $1.68 trillion. This suggests that the price of Ether may continue its upward trend towards $2,500 even if the average transaction fee exceeds $5. While this may not seem excessive, it can be overwhelming for most decentralized application (Dapp) users.
One can easily fall for the narrative that competing chains are gaining relevance, as critics say that the Ethereum network has failed due to the limited capacity of scalability and privacy solutions at the base layer level. This negative rhetoric has been boosted by the performance of Solana ( SOL ) and BNB ( BNB ), which have gained 78% and 44%, respectively, over the past 30 days. As an example, experienced Solana ecosystem developer Matt Taylor posted about this on the X social network.
Some information for anyone pushing the narrative that Ethereum is better positioned to be an RWA/institutional chain:
TradFi institutions are more sensitive to fees, speed and overall infrastructure performance than memecoin traders.
See why Visa chose @Solana.https://t.co/tNGpgvNekG
— mattytay (@mattytay) December 28, 2023
However, this analysis fails to take into account the undeniable success of the Ethereum layer-2 blockchains and the dominance of the Ethereum Virtual Machine (EVM). Additionally, the $29.6 billion Ethereum network's Total Value Locked (TVL) is worth most of the negative reviews. By comparison, BNB Chain only holds $3.6 billion in revenue, while Solana's latest data is $1.4 billion, according to Defillama.
It can be argued that not every DApp needs a large TVL, and even the decentralized finance (DeFi) industry is working to maximize the use of deposits. Therefore, other metrics like transactions and active contacts are better for measuring adoption.
In addition to its absolute Layer-1 dominance, the Ethereum network has seen a 38% growth in the last 7 days, distancing itself from BNB Chain and Solana. Highlights on Ethereum include Uniswap's $20 billion at the time, followed by Balance's $9.4 billion and Cowswap's $0.9 billion. In comparison, BNB Chain's leading app PancakeSwap raised $4.2 billion over the same period.
Ethereum layer-2 scale solutions have exceeded expectations in terms of activity
When measured for Ethereum layer-2 solutions, the ecosystem exceeds any competitor in terms of active addresses involved with DApps. In addition to the established Polygon network, the privacy-focused zkSync Era has raised the cumulative number of unique active addresses (UAW) of the Ethereum package to 2 million in just 7 days. The zero-knowledge transfer is expected to start tokenizing in the near future, which will create more demand for its network usage.
Related: Why Is Solana (SOL) Price Down Today?
Ether's price increase was also fueled by a study published on December 28 by Ethereum founder Vitalik Buterin, which proposed a method to reduce the burden on validators, theoretically reducing the number of required signatures by 70% and making the process more numerically-proof. The proposal proposes three different solutions, ranging from decentralized staking pools to a “light” stopping mechanism and transfer between responsible committees.
Finally, Ethereum's upcoming update, known as Cancun, is set to go live for testing starting January 17th. The aim is to reduce transaction fees and introduce new features for bridges and playing pools. Specifically, Ethereum Improvement Proposal (EEP) 4844, or “proto-danksharding,” includes temporarily storing transaction data in a new format called “blobs” that significantly reduces layer-2 transaction fees and increases the efficiency of blockchain networks.
Data shows that Ether's rally was fueled by network and ecosystem usage, dominance of DApps deposits, and anticipation of further improvements from updates. Those changes will strengthen its leadership in smart contract processing and retention.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
