The price of Ether (ETH) — the native cryptocurrency of the Ethereum blockchain — has surged to a new all-time high today of US$3,200.91, officially making Ethereum co-founder Vitalik Buterin the youngest cryptocurrency billionaire in history.
With the exponential growth of the decentralized finance (DeFi), non-fungible token (NFT), and the stablecoin ecosystem, Ethereum prices have increased by more than 320% since the beginning of 2021, according to CoinMarketCap. The second-largest cryptocurrency, Ethereum now has a market capitalization of over US$368 billion, making it more valuable than corporations like Nestle, the Walt Disney Company and even the Bank of America in terms of total market cap.
According to an address disclosed by Vitalik Buterin in October 2018, the 27-year-old Ethereum founder now holds over US$1 billion worth of ETH in his main wallet.
Ethereum’s price surge has now made Buterin the youngest cryptocurrency billionaire, and the second-youngest self-made billionaire behind only Austin Russell, who founded Luminar Technologies in 2012 and became a billionaire at age 25. Russell currently has a net worth of US$2.6 billion, according to Forbes.
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But why does Ethereum have value at all, and what is behind the surge in ETH’s price?
What gives Ethereum value?
The Ethereum blockchain has been touted as being the potential backbone of the internet of the future, but unlike the traditional internet, the Ethereum protocol is much better suited to capture the value of the applications built on top of it.
With the traditional internet, the internet protocol layer is not as valuable as the applications built upon it. Sites like Facebook and Google are valuable because of the data they hold, which is privately held and not freely available to other applications running on the Internet Protocol — which consequently means that the base layer of the internet itself has little value despite being critical to supporting the global network.
In the case of the Ethereum protocol, the decentralized applications (DApps) built on top of it are unable to silo their data and value from the base layer. Smart contracts are open-source and available to anyone to review and audit.
For Ethereum, the application layer is the DApps that have been built on top of the blockchain like DeFi — the decentralized exchanges (DEXs), lending protocols and yield farming for example. The value of these DApps is also enhanced through their ability to interoperate and share data with each other as they share the same protocol layer — Ethereum.
Ethereum is able to derive value because of its native cryptocurrency ETH, which acts as the fuel that underpins the entire network. All computations that run on the network require ETH to pay for gas fees. In a sense, by owning ETH a user basically owns a share in the value of the underlying Ethereum network — the base layer of the internet of the future. This also means that the value of ETH is directly linked to the user demand on the network.
And according to on-chain market intelligence Glassnodes, the demand is surging as the number of active Ethereum addresses has surged to over 600,000 — a new all-time high in active addresses in the network.
DeFi growth Parabolic
There are three major factors driving the growing demand for Ethereum and ETH prices — decentralized finance (DeFi), the NFT market boom and demand for stablecoins.
Despite reports of congested networks and high gas fees, the Ethereum blockchain still hosts the majority of the DeFi space and NFT creation. According to Dune Analytics, the growth of DeFi users is looking increasingly parabolic, quadrupling to over 2.1 million users in just the past eight months.
“Compared to 2017, when initial coin offerings (ICOs) and unbridled speculation were the primary drivers of Ethereum’s growth, this time around the surge is more sustainable,” said Ben Caselin, head of research and strategy at AAX, in an interview with Forkast.News.
“Earlier this year, Ethereum had been lagging behind Bitcoin. Coupled with high gas fees and platforms such as Binance Smart Chain aggressively competing for market share, the language around Ethereum was surprisingly bearish,” Caselin said. ”Especially considering the activity across the decentralized finance (DeFi) and non-fungible token (NFT) sectors.”
Caselin also points to other major developments that are taking place on Ethereum.
“In Asia, for example, we can see partnerships around central bank digital currencies (CBDCs) that leverage the Ethereum blockchain, while in Europe, the European Investment Bank is organizing a ‘digital bond’ sale on Ethereum,” Caselin added.
ETH Price to $5000
Although Ethereum prices surged to their highest-ever levels today, OKEx Insights senior editor Hunain Naseer told Forkast.News that the price appreciation is “far from reflecting the all-time high from the ETH/BTC pair.”
“We can expect ETH to consolidate in the current range and retest the support zone between 2,900 and 3,000 USDT. On the upside, resistance is likely between 3,250 and 3,300 USDT, while strong support, in the event of a market crash, is likely to be seen in the 2,500 to 2,600 USDT zone.” Naseer said. “In order for ETH to continue consolidation followed by appreciation, BTC needs to stay above the 55,000 USDT level without any major market shocks.”
AAX’s Caselin’s agrees that as ETH prices are currently charting yet another all-time high above US$3,050, it will be important to keep a close eye on the Bitcoin dominance chart which stands at 48% according to Coinmarketcap and is currently undervalued according to its RSI. He also makes a more bullish prediction about the Ethereum cryptocurrency’s future trajectory.
Bitcoin dominance is a measure of how much of the total market cap of crypto consists of Bitcoin. Typically, as BTC dominance increases, altcoins tend to drop in value.
The relative strength index (RSI) is a technical indicator used in the analysis of financial markets. Traditionally with an asset, the RSI is considered overbought (overvalued) when above 70 and oversold (undervalued) when below 30.
“Showing a score below 30 on the RSI, Bitcoin has been oversold for over a month now,” Caselin said. “A resurgence in the Bitcoin price may see less established altcoins shedding value and send Ethereum to $5,000.”