HomeCryptocurrency4 Factors Influencing Ethereum (ETH) Price

4 Factors Influencing Ethereum (ETH) Price

Fundamentals Matter even in Cryptocurrency

Best Freelancers to help you Grow your Business

Like almost any cryptocurrency in the market, Ethereum was making headlines at the end of 2017 with its explosive annual growth in ETH/USD of around 10,000%. Although things have changed radically since then, many still expect Ether to “go to the moon.” But is it a realistic expectation?

Where We Stand Now

Ethereum co-founder Vitalik Buterin says the heady days of “1,000x price increases” are over for the cryptocurrency market. Following this assumption, cryptocurrency should be traded less like a speculative investment but heading to real-world adoption and usage.

If you are shopping for insurance, booking travel, gaming, buying entertainment tickets, or tracking and shipping products using the Ethereum blockchain, you know that many transactions in Ether represent productive economic activity.

The Ethereum blockchain hosts over 3,000 dApps running decentralized marketplaces across all industry sectors. While transaction volume is still relatively low in this microcosm of the real economy, Ethereum wallet usage is rapidly growing as more businesses and consumers make transactions in ETH.

However, like other cryptocurrencies, the ETH price is influenced by the volatility of Bitcoin as the bellwether currency that is subject to the whims of the speculators. In other words, the high spike in cryptocurrency prices in December and January was not the new normal.

The run-up was driven by the rush of mainstream investors into the exciting new world of cryptocurrencies. As the novelty fades, Buterin says valuations should reflect fundamentals.

Since more of ETH’s transaction volume comes from productive activity including payment transactions and rewards in its growing universe of dApps, investors should evaluate the fundamentals driving transaction activity. Following are four factors related to “actual usage” that should be considered when valuing Ether.

- Advertisement -Protect and Monitor your Kids

1. Transaction Volume

The number of transactions processed on the Ethereum network is one of the most important metrics in the crypto economy. As noted, most Bitcoin transactions reflect speculative trading whereas more commercial transactions are being made in Ether.

An exception was the bull run-up in December and January when ETH transactions jumped from 500,000 to 1.25 million on mostly speculative trading activity. Daily transaction volume is now fluctuating around a more moderate 600,000.

As the blockchain marketplaces based on the Ethereum token standard (ECR-20) grow, the percentage of commercial transaction volume is increasing.

2. Ethereum Wallets

The real driver of ETH growth is getting consumers to open up their virtual wallets.  In 2018, the number of Ethereum wallets used to store, send and receive ETH jumped 2.3 times to 42.5 million unique addresses by September.

- Advertisement -Best WordPress Hosting 2024

While the daily addition of Ethereum wallets, currently about 50,000, fluctuates greatly, the positive growth trend in shoppers spending Ether is strong.

The monthly compound growth rate in Ethereum wallets is 11 percent to date in 2018, doubling the monthly growth of 5.5 percent in 2017.

The number of wallets opened is actually higher, but those never used in transactions do not appear in the figures. These non-spenders will help sustain the positive growth when they do open their wallets and start paying for goods and services in ETH.

Meanwhile, dApps from real estate markets to solar energy for the home are providing attractive incentives and rewards to encourage consumers to spend Ether instead of fiat currencies. The low to no transaction fees on decentralized marketplaces provide further savings.

3. dApps Growth

Although Ethereum has a clear lead, the dApps race is heating up. The number of dApps on the Ethereum network ultimately determines the transaction volume. Since not all of the over 3,000 dApps will succeed (about half are live), this should be used as a rough gauge of the popularity of the platform.

This metric is becoming more relevant, though, as new blockchain competitors to Ethereum enter the market on a regular basis. These rivals plan on improving the transaction speed and volume of the leading blockchain for dApps. Some Ethereum dApps seeking higher performance have already migrated to other blockchains.

The Ethereum network, which has a clear first-mover advantage, is planning its own upgrades to speed and scalability. But technological advances can upend any market and make it anyone’s game to win.

4. Mining Difficulty

Ethereum’s summer price slide continued into the early September. Hashing power slid alongside the price.

When the Ethereum price is high, miners have an incentive to mine more of it. When prices are low, mining activity may slow and miners will horde Ether waiting for prices to rise before selling it.

The hash rate – the time it takes to solve a cryptographic math problem and verify a transaction – increases with GPU power. To slow the rate of the difficulty of solving these puzzles and ensure a steady supply of Ethereum, Ethereum developers have recently agreed to change the number of Ether produced per block to two from three.

To Sum It Up

The influence of other leading indicators should not be ignored as well. For instance, the correlation between the price of BTC and ETH is tightening, narrowing to 0.81 over the last three months from 0.70 over the past year.

The bellwether cryptocurrency reflects the sentiment of the market towards the cryptocurrency market in general. As a sentiment indicator, it has growing influence over other virtual coins.

Fundamentals though should be given the most weight when valuing long-term investments in Ether. Valuing stocks provides an instructive analogy. Stocks of companies with strong fundamentals have historically performed better than the rest.

Related Topics

Find the Best Freelancers
NaijaTechGuide may receive financial compensation for products/services purchased through affiliate links on this site. See full Affiliate Disclosure Here
NaijaTechGuide Team
NaijaTechGuide Team
NaijaTechGuide Team is made up of Experienced Tech Enthusiasts and Professionals led my Paschal Okafor, a graduate of Electrical and Electronics Engineering with over 17 years of Experience writing about Technology. Some of us were writing about Mobile Phones before the first Android Phones and iPhones were launched.

Recommended Read on NaijaTechGuide

Best Marketing Automation Software 2024

You need the best marketing automation software to scale your business fast and convert...

Best Content Marketing Tools for 2024

As a content marketer, you have a lot of tasks to accomplish. You need...

Best VPN Services Providers for 2024

The internet is one of the greatest achievements of humanity, but it is also...

Best Laptops for Students 2024: 11 Top Picks to Choose From

So, you are a student who is looking to get the best laptop they...

Samsung Phones and Prices in Nigeria 2024

Samsung Galaxy Phones are the secret of Samsung's dominance in the smartphone market. Samsung...

Cheap Android Phones 2024 – Price, Specs, and Best Deals

Are you looking for the best cheap android phones in the market right now?...

Best Android Phones 2024 – Price, Specs, and Best Deals

New Android Phones are launched into the market every week. This means that if...

Best Web Hosting Services for Building Websites in 2024

A good and reliable web hosting service will make a big difference for your...
Find the Best Freelancers

More like this

Sell Bitcoin: How to Sell BTC | Fast Cashout in Nigeria

As more people lose trust in fiat currency, the traditional and widely known means...

Benefits of Market Orders in Algorithmic Trading

Market orders are indispensable for achieving speed and efficiency in trade execution. By executing...

The Ethical Considerations of Bitcoin Investment

Bitcoin, the first decentralized cryptocurrency, has won massive recognition and interest from individuals and...