- Ethereum is not only a digital currency but a programmable blockchain technology, and that affects its demand dynamics
- Ethereum price analysis shows that there have been tons of price fluctuations in the past
- Although predicting the value of ETH is almost impossible, there are several strong signs that it will appreciate in the coming years
Since its launch in 2015, the price of Ethereum has fluctuated in keeping with the changing sentiments in the cryptocurrency market. The second-largest crypto by market capitalization, Ethereum is not only a digital currency but a programmable blockchain technology. This property makes its utility different from Bitcoin which functions merely as a digital currency. Ethereum price analysis will show how this plays differently out from the price dynamics of Bitcoin, since it is viewed as a safe haven asset.
Fundamentals of Ethereum Pricing
Like any other market commodity, the pricing of cryptocurrency is determined by demand and supply economics. However, in the case of Ethereum, there is an additional dynamic that is involved. This relates to its role as a platform for smart contracts. We will examine each of these factors in detail in the paragraphs below.
1. Mining profitability: The correlation between mining profitability and ether (ETH, the native currency of the Ethereum platform), is a major determinant of the market price. Miners tend to sell their assets when the price of ETH is high, but high prices also encourage other miners to enter the fray lowering the profitability.
On the other hand, miners tend to hold on to their assets when the prices are low in the hope that they will rise. The playing out of such intricate and complex dynamics affect the value of ETH on the cryptocurrency markets.
2. Adoption: The greater the number of people that adopt a cryptocurrency, the higher its value. This is also the case when major corporations announce their adoption of a new cryptocurrency. More people adopting a technology pushes up the demand for tokens which leads to a corresponding rise in the value of the coins.
3. Competition: The number of cryptocurrencies in the market also has a bearing on ETH pricing. There are nearly 3,000 cryptocurrencies in the market currently. Each of these competes with the other which impacts the valuation of ETH on the bourses.
4. Potential: Thanks to the versatility of Ethereum, stakeholders are perceiving it as a technology of the future. The potential of Ethereum over the long run is a key factor that is responsible for a bullish outlook on ETH.
5. Volume of smart contracts: Unlike Bitcoin, which is an exclusive digital currency, Ethereum is a ledger technology that can perform numerous functions including the execution of smart contracts. Smart contracts using the Ethereum platform need to be paid for in ETH, hence the quantum of smart contracts has a bearing on its demand-supply metrics which affects its market value.
Historical Value & Current Pricing
As Ethereum is a recent technology, any price analysis of Ethereum needs to start at the very beginning. The concept was proposed by Russian-Canadian developer Vitalik Buterin in 2013 and the Ethereum ICO was launched the following year which managed to rake in USD 16 million making it one of the most successful ICOs of all time. The platform went live in July 2015 with 72 million minted coins.
The price of ETH witnessed considerable volatility in the ensuing period. Lingering between USD 2 and USD 15 between 2015 and mid-2017, it reached a peak of USD 1,377 on January 16, 2018 driven by the cryptocurrency boom. However, by December that year, the price of ETH had bottomed out at USD 84. It rose in the following years and was hovering around the USD 200-250 mark as of early March 2020.
Value Forecast: 2020 & Beyond
Predicting the market value of an asset is a tough job in the best of times. With cryptocurrency, it is almost impossible. Its newness and volatility make any attempt at forecasting its future value quite futile. The best one can do is to take a guess at the general direction in which a specific cryptocurrency is headed based on past performance and emerging trends.
Ethereum Price Analysis Beyond 2020
Despite the risks and complexities involves, several experts have nevertheless attempted to forecast the performance of ETH using a wide array of models and algorithms. Analyst Bobby Ullery is highly bullish about ETH suggesting it could hold 25% of the value of the total cryptocurrency market in 2020. The entire cryptocurrency market will be worth USD 4.5 trillion in 2020 as per his estimate. This means 1 ETH will trade at USD 11,375—which is unlikely, but not impossible.
The cryptocurrency portal CoinKir is also optimistic about the future of ETH and estimates it will exceed USD 1,400 by the year-end. It has looked at historical price trends to arrive at this conclusion. The projection by LongForecast is considerably more subdued with 1 ETH valued at USD 531 in June 2020.
Most analysts see the value of ETH appreciating in the medium term. WalletInvestor foresees ETH touching USD 844 by 2025 while CoinSwitch expects the value to remain somewhere in the vicinity of USD 2,500 between 2022 and 2025 and rise to around USD 4,000 by 2030.
Longforecast is bearish in the medium term and expects it to fall to USD 230 by 2023. CryptoGround estimates ETH will be trading at USD 1,445 in 2025.
While there are wide divergences over the numbers, there is general consensus that the value of ETH will appreciate in the medium term. At the same time, it is critical to understand the limitations of such forecasting. The versatility of Ethereum as a blockchain technology is a major advantage that may propel it in the future. The promise of technological improvements is another major aspect that could increase the adoption rate.