Ethereum network strength, macroeconomic factors have pushed ETH’s rally back to $2.5K.
The price of Ether (ETH) rose 10% in the first 9 days of February, breaking above $2,450 for the first time in three weeks. This activity coincided with the bullish pace of the broader cryptocurrency market and had a significant impact on the macroeconomic environment.
Despite the reasons behind Ether's rally, investors are growing more bullish as deposits on the Ethereum network continue to rise. But, is this momentum enough for a sustained advance above $2,800?
Weak economic data on Chinese and US fiscal debt trends creates an opportunity for riskier assets
In the year On February 4, US Federal Reserve (Fed) Chairman Jerome Powell emphasized the importance of a more sustainable public debt path in an interview. In the year US debt service costs will represent 2.4% of gross domestic product (GDP) in 2023 and are projected to increase to 3.9% in 2034, according to the Congressional Budget Office. According to Neil Irwin, author of Axios Macro, these forecasts will prompt the Fed to cut interest rates.
Cultural finance investors faced additional concerns from China when January's Purchasing Managers' Index (PMI) showed manufacturing activity contracted for the fourth consecutive month. The government has introduced measures to support the real estate development market, which is currently under pressure from high levels of debt, following China's central bank's biggest cut in bank reserve requirements in three years, AP News reported.
Investors also sold some fixed-income positions, pushing the 2-year U.S. Treasury yield to a two-month high of 4.48%, up from 4.21% on February 1. It is a record high above $5,000, which shows that investors are not overly concerned about the economic crisis, at least in the short term. Nevertheless, US fiscal debt trends highlighted by the Fed Chair create favorable conditions for smaller alternative assets such as Ether.
This move poses challenges for cryptocurrencies as the stock market continues to attract the majority of inflows into risk assets. However, some stocks like chipmaker NVidia ( NVDA ) and e-commerce giant Amazon ( AMZN ) are currently trading at 33 times earnings to 2024, with some stocks trading at a premium of 22 times the S&P 500 average, opening the door for alternative investments at the same time. .
Ethereum price rally is supported by Ethereum network activity.
The Ethereum network should monitor on-chain activity to assess whether Ether's price gains in February are supported by sustained demand for ETH. The network's smart contract deposits, measured in total value locked (TVL), hit an 11-month high of 16 million ETF on February 9, a 19 percent increase from the previous month. However, most of the increase came from EigenLayer's liquid staking solution, which rose to $5.85 billion TVL from $1.15 billion last month.
Other noteworthy mentions include liquid staking applications Mantle Staked ETH and ether.fi, along with farm service Pendle. Importantly, the Ethereum network maintains its status as the absolute leader in payments, serving as a proxy for real demand. To illustrate, Ethereum's $10.4 million payout in 24 hours is eight times higher than Tron's and 12 times higher than BNB Chain's, according to Defilama.
Related: Bitcoin ETFs Create Optimism Around Ether ETFs, But Is It True?
Beyond Ethereum's existing use cases, another source of optimism for Ether investors is a new non-fungible token (NFT) format called ERC-404. This method allows distributed capabilities in the current ERC-721 standard. Although in the early stages, this promising idea could boost the activity of the sector and further stimulate the demand for ETH. Additionally, the much-anticipated Denkun Network update is slated for March 13, which will bring benefits to lower Layer-2 package costs.
From fixed income investors looking for an alternative to stocks, and considering the demand that the continued growth and development of the Ethereum network can bring, Ether investors should not be afraid of the recent 10% price gains or the $2,650 resistance and Ether's final challenge. On January 11, the price action appears strong.
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.
