Optimism about Ethereum was revived. What price could it reach?

Renewed investor interest in ether (ETH), Ethereum’s native cryptocurrency, has revived optimism about the future of its price.

The investment firm QCP Capital mentions that the price of ETH has recovered “sharply” from a low of $3,400currently trading at $3,500, after rising to $3,600, as seen on the TradingView chart.

ETH price. Source: TradingView.

Additionally, implied volatility, which measures the market’s expectations of future volatility, rose sharply to 65%. This indicates a strong bullish sentiment in the marketwhere investors expect significant movements in the price of ETH.

Among the events supporting this bullish sentiment is the US Securities and Exchange Commission’s (SEC) investigation into Ethereum 2.0. On June 19, the regulatory agency reported that it will stop investigating whether ether is a security (security) not registered, as reported by CriptoNoticias.

For the SEC, ether would be a commodity or commodity and not a security. Therefore, it has no jurisdiction over that cryptocurrency. This development eliminates a lot of regulatory uncertainty, which is positive for the price of ETH.

Another bullish catalyst for ether relates to Ethereum spot ETFs. Companies that want to issue these funds are responding to the SEC’s comments and intend to return them this week.

The approval of an Ethereum ETF would be a significant development as it would make ETH easier to access for a greater number of investors, thus increasing demand and potentially the price.

Recall that spot ETF management companies must purchase and hold ether in their treasuries to back their actions.

As more investors put money into these funds, the entities that manage the ETFs will need to acquire more units of the cryptocurrency to maintain adequate support. This, in turn, reduces the amount of ether available on the open market, which can lead to an increase in price due to limited supply.

Ethereum options market is bullish

QCP Capital also notes that the options market has reflected this optimism with strong option buying activity on various time frames.

Call options are contracts that give the buyer the right, but not the obligation, to purchase ETH at a specific price before a certain date. Strong buying activity in these options suggests that investors expect the price of ETH to rise.

The firm notes that, despite the uncertainty over the receipt of the ether ETF, if ETH manages to capture 20% of bitcoin spot ETF flows, Its price could exceed $4,000 and approach its maximum of $4,800.

This is based on the premise that an ETH ETF could attract the same investors who currently invest in bitcoin funds.

A similar estimate has technical analyst Ali Martínez who pointed out that the most important resistance barrier for Ethereum continues to be between $3,900 and $4,000, the maximum in more than two years that it touched two months ago.

“If ETH clears this hurdle and prints a daily candle close above $4,170, the bearish outlook will be invalidated.”

Ali Martínez, technical analyst.

This would result in a new countdown phase towards $5,000, stated the analyst. At the moment, the cryptocurrency’s all-time high was almost $4,900 in November 2021 during the previous bull cycle.

3 reasons to add Ethereum to portfolios

In addition to what was stated by QCP Capital, Ethereum brings together three reasons to be a focus of investmentsaccording to Matt Hougan, chief investment officer at asset manager Bitwise.

The first is diversification. Cryptocurrencies are a new and disruptive technology that can move money at the speed of the Internet. However, it is difficult to foresee exactly how cryptocurrencies will change the world. Therefore, the default approach should be to “own the market,” he says.

With a market capitalization of approximately $420 billion, ether is one-third the size of bitcoin, which has a capitalization of $1.3 trillion. Therefore, the default starting point for many should be approximately a 75% investment in BTC and 25% in ETH.

The second reason to add ETH to investment portfolios is that Bitcoin and Ethereum aim for different use cases. Bitcoin is a new form of money, while Ethereum’s main function is to make money programmable, serving as a technological platform for new applications that rely on public blockchains, such as stablecoins and decentralized finance (DeFi).

“Adding ETH to a majority BTC position provides broader exposure to everything public blockchains can offer”

Matt Hougan, Chief Investment Officer at Bitwise

Lastly, the Bitwise executive explains that adding ETH to a portfolio over a full market cycle has “historically increased absolute and risk-adjusted returns compared to adding just BTC,” as shown below.

Investments in ETH and BTC portfolios. Source: Matt Hougan

“What I like most about that table is that the ETH portfolio has higher returns and a lower maximum drawdown. “Long live diversification!” says Hougan.

Although the recent shorter time periods show that only BTC has gained, Historical Analysis Suggests Diversification with ETH Has Been Beneficial.

Strength in the Ethereum DeFi sector

Ryan Watkins, co-founder of hedge fund Syncracy Capital, outlines the current state and outlook for the DeFi sector on the Ethereum network, highlighting several key points.

Major DeFi platforms are generating historic revenue, but their market valuations (the price of their tokens) are the lowest they have ever been, as seen in the chart below.

Income and prices of DeFi tokens on Ethereum. Source: Ryan Watkins.

This suggests that Token prices do not adequately reflect the revenue and value these platforms are generatingaccording to Watkins.

Revenue from DeFi platforms is expected to increase further due to several major updates that are about to be rolled out, such as Maker Endgame and Uniswap V4. Additionally, ether ETFs could attract new interest and capital to the Ethereum ecosystem.

Recent developments in terms of clearer or more favorable regulations for cryptocurrencies are also cause for optimism. Although no significant political changes are expected in the short termthe perception and narrative around DeFi are improving.

Despite near-term regulatory and market challenges, the DeFi sector is expected to continue benefiting from “favorable tailwinds,” that is, positive external factors that drive the growth and development of the sector.

 
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