Ethereum, the world’s largest altcoin running on the decentralized platform, is the second-largest cryptocurrency. Designed by programmer Vitalik Buterin, the cryptocurrency came into existence on 30 July 2015. Despite price swings, Ethereum is considered to be the most stable cryptocurrency, right after Bitcoin. While the latter’s price point is often too high for investors to enter, Ethereum allows investors to enter the crypto market with its price point. But investors are often wondering what influences the Ethereum price? As with all cryptocurrencies, Ethereum is also susceptible to market volatility, which is why understanding the various factors affecting Ethereum price as well as Ethereum price drivers can help investors make better decisions.
Factors Affecting Ethereum Price
Ethereum’s native token, Ether (ETH), is susceptible to price volatility, like all cryptocurrencies. There are various factors that contribute to Ethereum’s price volatility, ranging from market trends, regulatory shifts, and technological upgrades to gas prices. In this article, we will take a deep dive into the various market factors influencing Ethereum prices.
Bitcoin Domination
Bitcoin and Ethereum dominate the cryptocurrency market, attributing approximately 61% of the total market cap. However, Bitcoin’s price has a direct correlation with all altcoins, and Ethereum is no exception. This is due to Bitcoin’s market dominance. Due to its historical relevance, security measures, and larger market capitalization, Bitcoin has had a dominating presence within the cryptocurrency market often contributing to the overall market sentiment. If Bitcoin’s price is bullish, often Ethereum’s price also mirrors the same and vice-versa. However, many a time Bitcoin’s price hikes can negatively impact Ethereum as investors allocate a larger share of their portfolio to Bitcoin, reducing Ethereum’s liquidity and prices.
Other Altcoin Competition and Market Trends
Ethereum faces competition from other altcoins like Ripple, Cardano, Solana, Polkadot, etc., due to their lower fees and faster transaction speeds. Often, these Layer 2 solutions propel developers to choose alternatives to Ethereum, which affects the prices of the digital asset. Moreover, market cycles and trends such as ‘altseason’ and memecoins often take the limelight away from Ethereum.
Market Sentiments
Ethereum’s price is heavily dependent on investor confidence and market sentiment like most cryptocurrencies. Any positive development in the crypto industry or technological upgrades to the Ethereum blockchain can drive up demand for Ethereum and push up prices further. Similarly, any negative news within the crypto ecosystem can also come down heavy on Ethereum’s prices. Investor confidence is one of the many market factors influencing Ethereum. Often, investors follow the Ethereum price prediction and its news regarding NFT and DeFi adoption, causing Ethereum to gain attention along with price upticks. Likewise, any setbacks in investor sentiment can impact market sentiment as a whole, bringing Ethereum’s prices tumbling down.
Regulatory Actions
One of the major factors for Ethereum’s price swings is regulatory action. As governments and large institutional investors provide increasing regulatory attention to the crypto space, these forces can be both a boon and a bane to cryptocurrencies. It stands the same for Ethereum. For instance, definitive regulatory direction can boost investor sentiment and bolster the uptick of Ethereum. Conversely, any regulatory uncertainty or restrictive bans can impact Ethereum’s prices due to sell-offs. One example is the 2020 lawsuit between Ripple and the SEC, which triggered a bearish market sentiment and adversely affected even Ethereum’s price.
Macroeconomic Conditions
Although crypto prices seem to be less affected by macroeconomic factors, they are an undeniable market factor influencing Ethereum and other cryptocurrencies. Key macroeconomic drivers such as inflation, interest rates, and economic growth rates can determine Ethereum’s prices. For instance, easing monetary factors such as the Federal Reserve decreasing interest rates can push investors to invest in cryptocurrencies like Ethereum for higher returns, as keeping money in their banks would yield less profits.
Supply and Demand
The supply and demand law plays a significant role in determining Ethereum’s price. Often after an upgrade to the Ethereum chain, more buyers are willing to invest in the token, shooting prices up. Usually, the demand for Ethereum increases due to factors such as an increase in interest in decentralized applications, decentralized finance, or NFTs. Similarly, if the supply of the token is low, there is a growing demand for Ether, which leads to an increase in the value of Ethereum.
Ethereum Network Upgrades & Technological Advancements
Ethereum enjoys attention from developers and investors alike for its scalability and how easily decentralized applications or dApps can be built on it. Over the years, Ethereum has shifted from Proof-Of-Work to Proof-Of-Stake, which now many call Ethereum 2.0. As Ethereum has evolved, $ETH has also increased in value. Ethereum was priced at $1471.69 on the day of the Merge (September 15th, 2022), which spiked to $2076.4 on April 17th, 2023.
Higher Ethereum Gas Prices
While there is no direct tie between Ethereum’s price and its gas prices, it is quite common to see gas prices rise when Ethereum’s prices reach higher bounds. Typically, users attempt to outbid each other for faster and smoother transactions when Ethereum’s prices are higher. Similarly, gas prices are also higher when the token’s volatility is higher than usual. This is because users are often trying to sell or buy any dips.
Conclusion
It becomes easy to understand the market once investors can tally all the factors affecting Ethereum price. From major factors such as technological upgrades and macroeconomic conditions to other altcoins competing against Ethereum, to determine Ethereum’s price investors cannot prioritize one over another. To ensure safe investments, all factors need to be gauged. Most of these factors cumulatively impact Ethereum’s price and tie in together. If technological upgrades take place on the blockchain, it affects market confidence, pushing Ethereum’s price to drive higher up.
