In recent times, Ethereum, the second-largest cryptocurrency by market capitalization, has been making headlines due to a sudden surge in value. The altcoin hit its all-time high in October 2021 at the $4,899 level. Despite ETH being down by nearly 66 percent from its all-time high, it has gained about 84 percent from its lowest cycle in the past seven months. However, several reasons are attributed to the recent surge above the $1,600 and $1,700 levels.
Upcoming Shanghai Update
Ethereum’s upcoming Shanghai update, scheduled for release in March this year, could be the primary driver behind the surge in the altcoin’s value.
One of the crypto world’s long-awaited events since ‘The Merge’ last year, the Shanghai Update promises to enhance Ethereum’s liquidity by unlocking the staked ETH in the Beacon Chain.
According to Ethereum founder Vitalik Buterin, the update’s primary focus is to address the platform’s scalability challenges by fragmenting the ETH database, enabling the network to scale while preserving its decentralized nature.
The Shanghai update is one of the most anticipated events in the cryptocurrency industry, attracting the attention of crypto enthusiasts worldwide.
As a result, traders and investors are likely to buy ETH to take advantage of its anticipated utility services post-update, driving its value further.
Ease Of Macroeconomic Relaxation
In 2022, many macroeconomic factors affected the global economy. On the one hand, the US Federal Reserve increased interest rates aggressively to address inflation. On the other hand, there were issues such as the conflict between Russia and Ukraine and the uncertainty caused by the pandemic.
When interest rates are increased aggressively, it can impact people who borrow large amounts of money. As a result, they may be less willing to invest in volatile assets like cryptocurrencies and instead keep their cash on hand.
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Last year, the Fed cranked up interest rates eight times since March 2022, including four consecutive 0.75 percent base points increases to tackle inflation.
However, the Fed has hiked 0.25 percent base points this January, as inflation showed signs of easing a bit. Investors and traders may anticipate fewer interest rate hikes than last year and may be interested in buying crypto assets.
Increased Institutional Adoption
In the past three months, there has been increasing institutional adoption of cryptocurrencies, contributing to Ethereum’s rise in value. In the past three months, ETH has surged by 36 percent.
Many large corporations and financial institutions, such as Visa, announced a proposal last December to enable Ethereum holders to set up programmable payments from their own self-custodial wallets. This would further eliminate banks and centralized third parties from the transaction process.
Surge In Bitcoin Price
Both Bitcoin and Ethereum have exhibited a positive correlation in the past years. If BTC surges in value, ETH also tends to follow suit. This is likely because BTC is seen as a store of value, and in times of market volatility, it is the first cryptocurrency investors would turn to.
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So, generally, when BTC’s value increases, it can increase investor confidence and investment in the broader crypto market, including Ethereum. However, this is not the only factor that has influenced Ethereum’s value, but it could be one of the factors.
HODLing — cryptospeak for holding assets for an extended period of time — can contribute to a surge in the price to a certain extent through increased confidence in the cryptocurrency. When more people hold Ethereum for a more extended period, it suggests that they believe in its long-term value and potential.
This might have attracted new buyers who saw the existing holders as a signal of the asset’s value. And this again, the upcoming update could be one of the reasons why investors and traders might be holding it.
Is This The Right Time To Invest In Ethereum?
Investing in assets is always a wise decision, but it’s crucial to remember that investing is a long-term process focusing less on immediate or short-term profits.
With a high market capitalization, Ethereum is one of the leading cryptocurrencies. While Bitcoin has a finite supply, Ethereum possesses vast utility and is poised to undergo numerous upgrades, resulting in exceptional scalability and applications soon.
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Whether or not to invest in such a cryptocurrency ultimately depends on the investor’s preferences and convictions. But, while investing, it is always suggested to do your own research before putting your hard-earned money on any asset.
(The author is the CEO and co-founder of Mudrex, a global crypto investing company)
Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP Network Pvt. Ltd. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.