Ethereum’s Rally to $2.5K: Strengthened by Network and Macroeconomic Factors

The price of Ether, the cryptocurrency associated with the Ethereum network, experienced a 10% increase in the first nine days of February. This surge pushed the price above $2,450 for the first time in three weeks. The rally in Ether’s price can be attributed to the overall bullish momentum in the cryptocurrency market and the macroeconomic environment. Investors have become increasingly optimistic as deposits on the Ethereum network continue to rise. The question remains whether this momentum will be enough to sustain a rise above $2,800.

The weak economic data coming out of China, as well as the fiscal debt trends in the United States, have created opportunities for risk-on assets. The chairman of the U.S. Federal Reserve, Jerome Powell, stressed the need for a more sustainable public debt path. Projections indicate that U.S. debt service costs could increase, prompting a decrease in the Fed’s policy interest rate. In China, manufacturing activity has been contracting for the fourth consecutive month, leading to concerns among traditional finance investors. To support the real estate development market, which is under pressure due to high debt leverage, the Chinese central bank has made significant cuts to mandatory cash reserves for banks.

Despite these concerns, the stock market has reached record highs, suggesting that investors are not overly worried about a potential economic crisis in the short term. The fiscal debt trends in the U.S. make alternative assets like Ether attractive. While cryptocurrencies face challenges as the stock market continues to attract the majority of risk-on asset flows, it also presents an opportunity for alternative investments. Some stocks, like chipmaker NVidia and e-commerce giant Amazon, are trading at significantly higher valuations compared to the S&P 500 average. This creates favorable conditions for scarce assets like Ether.

The recent price rally in Ether is supported by the activity on the Ethereum network. On-chain activity, measured by the total value locked (TVL), reached an 11-month high. The surge primarily occurred on the EigenLayer liquid staking solution, which saw a significant increase in TVL. Other applications like Mantle Staked ETH, ether.fi, and Pendle also contributed to the rise in TVL. Ethereum also maintains its dominance in transaction fees, indicating strong demand for the network.

There is optimism among Ether investors regarding the potential for a new non-fungible token (NFT) format called ERC-404. This format would allow for fractionalized capabilities within the current ERC-721 standard, potentially boosting activity in the sector and driving further demand for Ether. The upcoming Dencun network upgrade scheduled for March 13 is expected to bring benefits such as reduced transaction costs.

Ether investors are not apprehensive about the recent price gains or the resistance at $2,650. The growth and development of the Ethereum network, coupled with the interest from fixed-income investors seeking alternatives to the stock market, contribute to the optimism surrounding Ether’s price performance.