Here's What's Driving the Price of ETH

Queue your rocket emojis, because ETH is flying.  ETH broke through the $3k milestone on Sunday and reached a new all-time high above $3,300 on Monday with its market cap just under $3.8B. Now, some DeFi community members are saying that ETH at $10k is on the horizon. But ETH’s massive price surge hasn’t been…

By: Dan Kahan Loading...

Queue your rocket emojis, because ETH is flying.

ETH broke through the $3k milestone on Sunday and reached a new all-time high above $3,300 on Monday with its market cap just under $3.8B. Now, some DeFi community members are saying that ETH at $10k is on the horizon.

But ETH’s massive price surge hasn’t been fueled on hype alone. From NFTs to DeFi to the fee market update EIP-1559, the Ethereum ecosystem is going through massive innovations that are making everyone from institutional investors to celebrities turn their heads.

Here’s a rundown of everything currently driving the price of ETH.

The NFT Explosion

While the earliest iterations of NFTs were created as far back as 2012, mainstream interest in NFTs exploded in early 2021.

It’s impossible to point to a single reason that NFTs took off this year, although a number of factors likely contributed. For one, the pandemic led to large-scale interest in digital assets that drew many newcomers to the broader crypto space. Then, a number of high-profile NFT sales in late 2020 and early 2021, like Beeple’s “The Complete MF Collection” and the 140 ETH Ape Punk, drew significant attention to the market.

Now, major licenses and brand names like the NBA and Taco Bell, big-name artists like Justin Roiland, and mainstream musicians and celebrities are entering the space.

CNBC reported that overall Q1 NFT sales for 2021 topped $2B, compared to $93M during the previous quarter. They also noted their Q1 estimate didn’t include NBA Top Shot or Christie’s Beeple auction, the latter having netted another $69M alone.

To be sure, not every NFT is based on the Ethereum blockchain. NBA Top Shots, for instance, runs on Dapper Lab’s Flow blockchain. But the fact is that most NFTs rely on Ethereum, and widespread interest in NFTs have brought large swathes of new users to the space.

Institutional Investors and Big Corps

In 2017, when the price of bitcoin soared to $20k, many institutional investors said cryptocurrency was a bubble. But in 2021, mainstream institutional sentiment towards crypto is very different. Institutional investors and investment groups have been racing to secure positions in cryptocurrency, including Ethereum.

In April, major banking companies including JP Morgan, Mastercard, and UBS invested $65M into the Ethereum software development firm ConsenSys. And the European Investment Bank, the publicly owned lending arm of the European Union, recently sold a 100M euro bond registered on the Ethereum blockchain.

Other corporate entities, including Amazon and Paypal, have also made moves to integrate Ethereum into their business models. Even high-profile fintech industry thought-leaders, like Mark Cuban, have become major advocates for Ethereum.

Plus, investment groups focused solely on digital currency have increased their Ethereum holdings over the past several months. In February the largest digital currency investment group, Grayscale, purchased 15,521 ETH over a 24 hour period. Currently, their Ethereum Trust holdings include $10B in assets, and they plan to launch an ETH ETF in the coming months.

All of this is to say, institutional investors and big corporates seem bullish on ETH and that, for many retail investors, lends an air of legitimacy to the blockchain.

EIP 1559, Scarcity, and Scaling Solutions

There are also several technological developments forthcoming for Ethereum that are heralded as improvements for scalability and useability, which many ETH enthusiasts see as bullish signals.

EIP 1559, a proposal to standardize Ethereum gas fees for both users and miners, is scheduled to be implemented during Ethereum’s London hard fork in July. The upgrade transforms the fee mechanism and has the potential to essentially decrease the total amount of ETH available, which would make ETH a deflationary asset. Many Ethereum community members view this as a major improvement for user-experience and also believe it will push the ETH price up.

Other forthcoming improvements to Ethereum largely revolve around scaling solutions to make the network faster and reduce its gas fees. The long-anticipated transition from Ethereum’s proof-of-work consensus algorithm to Ethereum’s proof-of-stake one is intended to make the network significantly more energy-efficient.

DeFi Is Hot

At the beginning of 2021, there was $16.1B Total Value Locked (TVL) in DeFi on the Ethereum blockchain, according to data from DeFi Pulse. At the time of writing on May 4, TVL is up to $77B, a 378% increase. This suggests that, unlike Bitcoin, people aren’t just HODLing ETH. They’re actually using it, which helps to justify ETH’s ever-rallying price.

This metric roughly tracks with user growth in DeFi, too. Since October 2020, the user base of Ethereum DeFi platforms has grown about 240% to around 2M individuals. And still, these numbers don’t account for the millions of people who limit their activity to holding ETH on MetaMask or buying, selling and trading on centralized exchanges like Coinbase.

All this increased innovation, adoption, and usage across multiple use cases and multiple kinds of users is having an upwards impact on the price of ETH and for many, signals a bullish future for Ethereum broadly.