Invest In Ethereum: What Will Drive The Ethereum Price In 2021?
An analytical guide to investing in Ethereum in 2021
Where will Ethereum ETH price go in 2021?
What will happen with the Ethereum price in 2021? It has been a little bit challenging for traditional investors to understand what drives cryptocurrency prices.
When we speak about traditional assets such as stocks or bonds, we already know that their price is driven by economic factors such as inflation or government regulation, for example.
But when it comes to cryptocurrencies, things are a little bit different. What drives their price? They are known to have a volatile nature, meaning that their price goes up and down often. But what causes this to happen?
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But, What really drives the Ethereum price?
There are three main factors that most affect the Ethereum price:
1. Decentralised finance
2. The launch Ethereum 2.0 - “Serenity”
3. Correlation to Bitcoin
Here at Trading Education, we analysed these factors and below we elaborated what we found out.
If you want to read a detailed Ethereum price prediction, take a look at this article.
Why should investors consider investing in Ethereum? What makes Ethereum so unique? Well, Ethereum is the second-largest cryptocurrency, after Bitcoin and it is designed for decentralised applications or the so-called DApps. Ethereum features smart contracts, and it is the most used blockchain in the world.
It was found on July 30, 2015, by a cryptocurrency researcher and programmer Vitalik Buterin.
Ethereum all-time price movements. Source: Coinmarketcap.
Throughout the years, Ethereum has built its reputation as a stable and secure cryptocurrency, and it has proven that it is volatile with drastic increases and decreases in prices. Thus Ethereum has given investors a chance to take profits. Recently, Ethereum has had colossal growth, attracting more investors and gaining more fame.
Would you consider investing in Ethereum ETH?
What Drives Ethereum Price?
It takes approximately 15 seconds for an Ethereum block to be completed while Bitcoin takes 10 minutes to complete a block. Therefore, it is evident that Ethereum is growing way faster than Bitcoin.
There are 112,503,417.62 Ether circulating right now, and unlike Bitcoin which tops out at 21 million BTC, Ethereum’s total supply is not fixed meaning that nobody will exactly know how many Ether will be out there in maximum.
But, what are the factors that affect Ethereum price?
3 Factors will drive the Ethereum price in 2021
Factor 1: Decentralised finance
Decentralised finance sounds like the future of finance. Ethereum is synonymous with Defi because it powers many cryptocurrencies in the decentralised finance sector. Ethereum hosts more than 200,000 ERC tokens, some of which are part of the top 100 largest cryptocurrencies. Many of these cryptocurrencies are active in Defi space. As the Defi is growing larger, the more demand there is for it, the more valuable it is, and the more the price of Ethereum will increase.
The total value locked in Decentralised Finance has grown drastically from August 2020. Source: Defipulse.
Decentralised finance looks like it will be a genuine competitor with the traditional way of centralised finance, and Ethereum is playing a pivotal role in this, thus attracting investors and causing the price to increase.
Factor 2: The launch Ethereum 2.0 - “Serenity”
As things stand now, Ethereum spends 22.65 kWh of electricity per transaction, which is a lot when counted within the year as a whole. This is because Ethereum currently uses the proof-of-work algorithm (PoW), in which miners must use sophisticated computer systems to verify transactions and thus integrate them into the blockchain.
This method requires a lot of energy, as mentioned earlier. Therefore it was decided to create Ethereum 2.0, which is expected to be launched on December 1, 2020.
Justin Drake, Ethereum 2.0 researcher, announcing the launch of Ethereum 2.0 on Twitter.
Ethereum 2.0 or otherwise called as Eth2 or "Serenity" will use the proof-of-stake algorithm (PoS) system with which users can "stake" cryptocurrency collateral in order to verify their transactions. This is a much more efficient and faster way than the proof-of-work (PoW) algorithm that Ethereum currently uses.
So, Ethereum 2.0 will be an immediate Ethereum upgrade, aiming to increase the speed, productivity, and scalability of the Ethereum network.
But how will Ethereum 2.0 affect Ethereum’s price?
Many cryptocurrency enthusiasts believe that once Ethereum 2.0 is launched, Ethereum’s price will spike up.
“The firing gun will go off”, Jamie Anson, founder of Nifty Orchard and organiser of Ethereum London, told Decrypt when asked about the impact of Ethereum 2.0 launch in crypto.
“Once Ethereum has scalability via layer-2 tech or ETH 2.0 all questions are answered”, he further added.
With Ethereum 2.0, there will be more attention and scalability which, according to Anson, will bring more usage.
“By the time ETH 2.0 and rollups work together, there will be 100,000 transactions per second capacity. That’ll mean a completely seamless experience for the next billion people”, Anson said.
For some others, the launch of Ethereum 2.0 will directly impact the price of Ethereum.
“This will have a long-term bullish impact on the price of ETH—notwithstanding the short-term volatility, which is part-and-parcel of crypto-asset valuations,” Matt Cutler, CEO of Blocknative said while speaking for Decrypt.
Ready to invest in Ethereum ETH?
Factor 3: Correlation to Bitcoin
Historically Ethereum has been correlated to Bitcoin. When two assets are correlated with each other, it means that their price moves in a similar way. So, in the moments when the price of Bitcoin goes up, so does the price of Ethereum. The same thing happens when the price of Bitcoin moves down, Ethereum follows.
According to the data from Cryptowatch, Ethereum’s correlation to Bitcoin at the moment stands at .78, which is the highest among other altcoins.
Ethereum is the highest correlated altcoin to Bitcoin. Source: Cryptowatch.
Ethereum’s correlation with Bitcoin was 0.95 in July 2020. Although as we can see, there is a sudden short-term drop to .78, yet Ethereum continues to be highly correlated to Bitcoin and keeps benefiting from this correlation.
How to Invest In Ethereum For 2021
Ethereum’s three fundamental drivers anticipate one thing for 2021: Ethereum’s price will depend on the success of Defi and the launch of Ethereum 2.0.
On January 10, 2018, Ethereum reached its all-time high of $1,412. After that its price lowered, then it wasn’t until 2020 when the coin started having drastic price increases.
Actually, 2020 has been a great year so far for Ethereum. The coin has entered the year a bit slow with a value of $127.41, to reach $279 in February. When Vitalik Buterin announced that Ethereum 2.0 would be launched, the price started rising, and it broke the resistance of $500. At the moment the price of Ethereum stands at $506.78.
What path will Ethereum take? How much can the price of Ethereum go in 2021?
“ETH will go to $1000 in a few short weeks, and then $5000”, the crypto expert Ivan On Tech tweeted on November 22d, 2020.
How likely is it that Ethereum will reach a price of 5000$ in 2021?
Is Ivan on Tech magnifying things, or is it possible that Ethereum really goes to 5000?
Well, to better understand the situation, we need to compare it to 2017 when the crypto boom occurred. At that time, Bitcoin halving gave a boost to cryptocurrencies in 2017, as halving had occurred in 2016, i.e. the previous year, and its impact was immediately noticed in the following year.
Considering how Ethereum reacted during the crypto boom in 2017 growing dramatically and in January 2018 reaching its all-time high, something similar may happen again in 2021, as currently according to experts we are in a similar position to 2017.
Now, Bitcoin halving happened on May 11, 2020, and the real impact on the price of cryptocurrencies has already begun to be noticed, but according to experts, the biggest impact will be noticed in 2021.
Thus, since Ethereum and Bitcoin are correlated, Ivan on Tech might be just right, and we could witness Ethereum reaching $5000 in 2021! Ethereum and Bitcoin will likely rise in price drastically together in 2021.
This is actually possible because let’s not forget that Ethereum knows how to surprise. In the past, Ethereum rallied from $0.25 per coin to an all-time high of over $1,400 per coin in just three years.
Add to that the fact that Ethereum 2.0 is being launched, and expectations for increased Defi demand, then Ethereum has no reason to hold back!
Ethereum Price Beyond 2021
In all likelihood, the price of Ethereum will most likely be affected by the quantity of demand for Defi. How much can Defi grow and gain support?
If there is support, then Ethereum will grow bigger. The launch of Ethereum 2.0 will also have an impact. If Ethereum 2.0 succeeds and upgrades the current Ethereum successfully and as claimed, then the price of Ethereum has no reason not to increase.
“When the triple bottom is complete, and Ethereum takes out its former all-time high, it could reach prices of over $35,000 per ETH before the end of the year 2025”, Primexbt claims.
Is Ethereum a Good Investment Right Now?
Yes! From the facts mentioned above, the future of Ethereum is very bright. Ethereum is a primarily excellent asset for investors that can take advantage of price fluctuations with a long or short position.
Ethereum has given investors the opportunity to invest when it has had low prices in the past. This is best elaborated in the table below.
Ethereum annual lows shown throughout its history: Source: Capital.com.
After these prices, Ethereum has known to increase up to 1000%, thus giving great opportunities to investors for profit.
Knowing that Defi has a lot of potential and considering the expert predictions and history of Ethereum, then we can conclude that Ethereum is a good investment. Moreover, Ethereum gains a lot of support and love from the cryptocurrency community.
Though, Invest in Ethereum or any asset can be very risky if you don’t know what you’re doing, and mainly during uncertain times. While no investment is risk-free, investing in Ethereum might generates good return in the coming years. Whether you’re new to Ethereum investing or just curious about how to make the most of your investment, understanding what to know before investing in ethereum is critical.
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- Ethereum is the second-largest cryptocurrency, after Bitcoin and it is designed for decentralised applications or the so-called dAaps.
- There are three main factors that most affect the Ethereum price; decentralised finance, the launch Ethereum 2.0 - “Serenity” and correlation to Bitcoin.
- Ethereum hosts more than 200,000 ERC tokens, some of which are part of the top 100 largest cryptocurrencies.
- As Decentralised finance is growing larger, the more demand there is for the Defi, the more valuable it is, and consequently, the price of Ethereum will increase.
- Ethereum 2.0 will be an immediate Ethereum upgrade, aiming to increase the speed, productivity, and scalability of the Ethereum network.
- With Ethereum 2.0, there will be more attention and scalability, which will bring more usage, consequently causing the price of Ethereum to increase.
- Ethereum continues to be highly correlated to Bitcoin and keeps benefiting from this correlation.
- Ethereum could go to $1000 in a few short weeks and then $5000 according to cryptocurrency expert Ivan on Tech.
- Ethereum could reach prices of over $35,000 per ETH before the end of the year 2025, according to Primexbt.
- Given the demand for Defi, the launch of Ethereum 2.0 and the price increase forecasts by experts, Ethereum is considered a good investment at the moment.
We hope this article has given you the knowledge and courage to start your crypto trading career whether you would want to start with Ethereum or other cryptocurrencies.
Or, if you are a trader who already has the experience, we hope this article has added more to your range of crypto trading knowledge.
Disclaimer: Cryptocurrencies are highly volatile. Your capital is at risk