Despite a bearish Q4 in 2021 that shredded billions from the crypto markets, Ethereum has been trading strongly for the last three months. With the news of 30,000 new call option trades being put for Ethereum, the token has been preparing for a massive rally in the coming week. With the biggest NFT drop on Ethereum and huge news coming from the networks latest update, will we see the ETH token rise sooner than expected? Let’s take a look.
Ethereum Price Performance
Ethereum’s token, Ether, has been one of the strongest performing assets throughout 2021. Eth was valued at just $1,200 at the start of the year, providing significant returns for long term holders of the coin. After reaching an all-time high of $4,900 in November, Ethereum has slowly rebounded from the correction that sent the token price down to $3,700. Currently, Eth has been consolidating from these levels and is trading just above $4,000, according to Coinmarketcap.
Why is Ethereum rising?
Compared to Eth’s ATH levels in November, the coin has corrected by 20%. However, the cryptocurrency is up $1000 in the last three months – an unprecedented bull-run for one of the biggest cryptocurrencies during a bearish winter. This is even more surprising considering the latest Consumer Price Index (CPI) results have recorded the highest one-year growth for inflation in almost 40 years.
Bitcoin is often believed to be a hedge against inflation, due to its finite token supply, capping out at 11 million tokens. The U.S dollar has been diminishing in value since the Federal Reserve has printed out more than 70% of the country’s currency in the last two years itself – to tackle the economic crisis triggered by the pandemic. Many investors are bullish on Bitcoin as a fiat alternative, which results in bullish momentum for the global leader of cryptocurrencies after unsavory inflation results.
Such was the case in November, when the CPI by a record 6.8%, the highest it has grown since 1982. This was one of the reasons why November proved to be a volatile month in the stock market as well, even Bitcoin not being able to rally after the inflation data was two times greater than the Feds estimated targets. Investors are now rethinking where to allocate money in the cryptocurrency sector, which is benefitting Ethereum.
Ethereum: a leader in its space.
Ethereum is the leader Layer 1 solution blockchain in the cryptocurrency space and has a market cap of almost half a billion USD. While Bitcoin is seen as digital gold by many, Ethereum works as a sophisticated technology platform acting as a stepping stone for developers, companies and investors to enter the Web 3.0 space.
Through sophisticated platforms such as smart contracts, Ethereum allows users and developers to mint, buy and sell NFTs and access various DeFi (Decentralized Finance) protocols that makes blockchain the hub for internet-based transactions.
In an interview with CNBC, Mike Novogratz, the CEO of Galaxy Investment Partners, said the following about Ethereum. “That’s why you’re seeing Ethereum outperform Bitcoin. If you look at the Ethereum price, Ethereum still trades as bullish as can be. People see Ethereum as a technology bet and bitcoin as a debasement of fiat currency bet.”
Since Jerome Powell’s (Chairman of the Federal Reserve) latest announcement has investors worried that government will reduce bond purchases and trigger higher interest rates as we enter 2022, Bitcoin’s possibility of being used as a hedge against inflation is also shrinking. This makes Ethereum a lucrative opportunity for those looking to purchase other tokens. Such was the market sentiment this week.
Ether Call Demand Rose Before End of 2021
The market witnessed bullish option flows enter Ethereum on the December 20. This indicated a potential end of the year rally for the ETH token if the call options played out successfully.
Paradigm, an over-the-counter (OTC) desk, noticed an inflow of 18,500 contract call options for the $4,400 mark, along with 14,000 for the $4,200 mark. The calls expired on December 31, which had many investors talking about the possibility of a mini-rally entering 2022. The call price of $4,400 represented that the ETH price would rally to the selected price range by December 31, which is why the market is currently bullish on the outlook of Ethereum. For a successful trade, the price of ETH would need to rally by 10% or 5%, respectively. Ethereum has already witnessed a significant upward trend, as prices have risen by 4.5% in the last 24 hours, while trading volume is up by 19%.
“The two trades were traded live and appear to be a large directional bet for a move higher into year-end”, says Patrick Chu, director of institutional sales and trading at Paradigm.
Layer 2 vs Layer 1 solutions
2021 was the year for altcoins, particularly Layer 2 protocols. While Layer 1 protocols like Ethereum have created their blockchain on which digital applications like smart contracts, NFTs and DApps have been deployed, Layer 2 solutions are slightly different.
The most popular Layer 2 solutions exist on the Ethereum platform, including Polygon (Matic), Avalanche (AVAX) and others. These protocols exist on Ethereum’s blockchain to make the network more scalable, cheaper and reduce transaction time. Many of the networks have released their cryptocurrencies in the last 2-3 years, all of which soared in 2021.
Altcoins like Solana, which are trying to replace ETH, soared by more than 14,000% in 2021, while Matic on the Ethereum-blockchain was trading at just $0.0018 towards the end of 2020. With a current price of $2.2, the token has soared by more than 1,500%.
Contrary to the current out-performance of several Layer-2 coins, 2022 will be the year for Layer 1 solutions, according to investors. The president of rival blockchain Avalanche, John Wu, backs this theory as well.
“I think going forward in 2022, that trend of correlation between and outperformance of price – or market cap with – utility and the growth of adoption of certain chains are going to continue”, he said.
Wu’s comments directly hint at the benefit of holding strong utility and value-based tokens to ensure safe and secure returns on cryptocurrency investments.
Wu further went on to say the following – “Now, if the whole market goes down for tapering reasons or whatever, you’re going to see outperformance from the layer 1s because the layer 1s are basically the best way to play the overall utility in this space.”
Here are some catalysts and important news points that can make this theory play out.
The launch of Ethereum 2.0 Testnet
A majority of the Layer 2 protocols are gaining popularity because of Ethereum’s main problems – High gas fees, lower throughput and limited scalability. While the Ethereum blockchain can process up to 25 transactions a second, other solutions like Solana can process more than 65,00 in the same period. In response to these apparent problems, the Ethereum creators have been working on the Eth2.0 protocol – which is expected to solve the significant issues on the blockchain.
While the developers are expected to release the protocol only by Mid-2022 – which will convert Ethereum into a Proof-of-Stake (PoS) platform to make transactions faster and cheaper, the first testnet has gone live. The testnet is deployed on blockchains powering new versions or softwares for testing and experimentation purposes.
On December 20 the Ethereum 2.0 testnet known as Kintsugi went live. The term ‘Kintsugi’ is a Japanese word that translates to ‘using gold to repair broken objects without attempting to hide the damage’.
The new testnet update may re-affirm many investors on the upcoming protocol, which will make Ethereum the Number 1 pick for all developers in 2022.
Adidas NFT launch
Following news of the new testnet launch, Ethereum made huge headlines within the span of two days, after Adidas launched one of the most profitable NFT drops on the Ethereum blockchain.
The sportswear company, Adidas, made $23.4 million in a single day after debuting its ‘Into the Metaverse” drop via Ethereum’s blockchain.
Collaborating with some of the hottest NFT projects like the Bored Ape Yacht Club (BAYC) and Punks, Adidas dropped a total of 30,000 NFTs.
Various other NFT drops, including the recent Adidas one, can be viewed on Opensea, the Ethereum based NFT marketplace. Popular NFT platforms that exist outside Ethereum’s blockchain like Rarible and Axie marketplace have been growing steadily – but Ethereum’s new protocol updates, including one of the biggest NFT drops in history taking place on Ethereum, make eth very bullish as 2022 approaches.