Ether prices have been rising lately, climbing to their loftiest value since early September as the supply of this digital currency dries up.
The digital currency, which serves as the native asset of the Ethereum platform, reached as much as $3,823.19 around 12:15 p.m. EDT, CoinDesk data shows.
At this point, the cryptocurrency had increased roughly 12% from the intraday low of $3,412.38 it reached yesterday, additional CoinDesk figures reveal.
Further, ether was trading at its most elevated value since September 7.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
When explaining these latest price movements, several analysts spoke to market dynamics.
“Momentum has been slowly building behind ETH over the past month, as DeFi projects accumulate more total value locked (TVL) and the disinflationary mechanism introduced in EIP-1559 begins to become more influential,” said Jesse Proudman, cofounder and CEO of crypto robo-advisor Makara.
“The DeFi sector, as a whole, has 7.5M ETH (~$94B) locked in various protocols. This, combined with more than 529,000 ETH being burned, should create upward pressure on the price as increasing amounts of ETH supply are removed from the liquid markets,” he stated.
“We expect to see the market make a solid run at a new all-time high before the end of the year,” Proudman added.
Sean Rooney, head of research at Valkyrie Investments, also weighed in.
“The explosive growth in DeFi since the summer of 2020 has attracted investors new and old to Ethereum,” he stated.
“At times DeFi transactions make up as much as 35-40% of total crypto transaction volume,” noted Rooney.
“This combined with ether locked up in preparation for ETH 2.0 has led to the lowest supply of ETH available for sale at traditional exchanges in over 3 years at under 13% of total supply.”
Gary Pike, director of sales and trading at crypto services firm B2C2, chimed in, providing additional input regarding market dynamics.
“There are two main contributing factors to why ETH is rallying,” he stated.
“First, macro inflation continues to be a constant driving force with yesterday’s CPI numbers. This continues to put constant upward pressure across the crypto complex as a whole boosting ETH’s value.”
“However, with the implementation of EIP-1559 aka the London Hard Fork, ETH now has a way to limit its supply with fee burning much more playing into this inflation narrative,” noted Pike.
He also spoke to the Ethereum network’s steady transition from proof-of-work to proof-of-stake, a development, referred to as “the merge.”
“There are many proposals to fully migrate all of the PoW mining to PoS staking validators known as ‘the Merge,’” noted Pike.
“Ethereum continues to be the main blockchain for real world business applications namely Decentralized Finance or DeFi, and digital art via Non-Fungible Tokens or NFT’s,” he continued.
“Since the Ethereum blockchain is actually being used more and more often, it makes sense that investors want to own part of the protocol via its native token ETH. These two business use cases should only grow exponentially once “The Merge” is complete as gas fees will be substantially reduced and blockchain confirmation times vastly improved.”
“These two combined metrics, macroeconomic and business use case technology improvements, have shaken off the Chinese retail news. As a result, more western institutions are also looking for ETH as a viable investment, viewing it as the next paradigm shift in the internet known as Web 3.0.”
Some analysts took a different view, speaking to investors reducing their exposure to bitcoin and increasing their holdings of ether.
Loan Venkatapen, cofounder and managing partner of Blocklabs Capital Management, spoke to this matter, stating that over the last few weeks, investors have been taking the profits they received from holding bitcoin and rotating them into ether.
Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital, also commented on this.
“Yes ETH has been rallying now after Bitcoin showed strength. This indicates some profits may be cycling into alts and is normal, but we can expect this trend to halt if BTC starts another leg up to test the all time high.”
David Schwartz, project director of the Litecoin Foundation, offered a contrasting view.
“Bitcoin has been steadily going up as well, and many alts have had up and down periods over this time,” he noted.
“I don’t believe there is a clear line of investing attrition from one asset to another. It’s more a blur of multiple reasons, most likely.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.