(Kitco News) - 2023 was a year of recovery for the cryptocurrency market after the events of 2022 – including the collapse of Terra/Luna and FTX – resulted in the total crypto market cap falling by $2.27 trillion, a decline of more than 75% from its peak in November 2021.
Ethereum (ETH), the second-ranked crypto by market cap, mirrored the decline in the broader market, with its price falling from a high of $4,850 in Nov. 2021 to $1,190 on Jan. 1, 2023, a decline of 75.5%.
Since then, Ether has more than doubled in price, hitting a 2023 high of $2,405 on Dec. 9. ETH has been bolstered by the start of the next bull market cycle for cryptocurrencies and optimism around the potential approval of the first spot Ether exchange-traded fund (ETF) after multiple large asset managers, including BlackRock, filed applications with the U.S. Securities and Exchange Commission (SEC).
"The fate of a spot Ethereum ETF looms large," said Daniel Krupka, head of research at Coin Bureau. "A successful ETF approval could lead to significant institutional investment, potentially driving ETH's price higher. However, concerns around censorship resistance if the ETF is staked need to be addressed."
"Centralization within the staking ecosystem requires careful monitoring," he said. "Lido Finance's dominance in staked ETH raises concerns about potential control and manipulation."
Krupka identified Ethereum's layer-2 (L2) fragmentation as a potential headwind. "Ensuring interoperability between different layer 2 solutions is crucial for Ethereum's long-term scalability and adoption," he said.
Despite those concerns, Krupka said, "Ethereum's position as the leading proof-of-stake blockchain remains a significant advantage. This inherent security is likely to attract institutional investors, particularly if competitors encounter scalability and security issues."
Based on this understanding, Coin Bureau's analysis suggests Ether's price "could reach its previous all-time high of approximately $4,890 by the end of 2024," he said.
"Ethereum's outlook for 2024 hinges on institutional adoption, fueled by the potential approval of a spot Ethereum ETF," Krupka said. "While Ethereum faces challenges like layer 2 fragmentation and centralization concerns, its inherent security remains a key draw for institutional investors."
"ETH's main catalyst going into 2024 will be its own ETF," said Johnny Gabriele, head of decentralized finance at CryptoOracle. "It has already been filed, and the second the Bitcoin ETF is approved, the narrative will instantly shift to the ETH version driving the same price action the Bitcoin enjoyed in November and December."
"Once that happens, activity on the L1 and its many L2s will cause a lot of ETH to be burned (a mechanism put into place after 'The 'Merge')," he said. "This will further draw attention to the asset and drive the staking yield to above 5%."
"A third narrative of tokenizing Real World Assets will bring even more institutional and retail players into the ecosystem, allowing Ethereum to blow past all-time highs," Gabriele said. "Ethereum will hit $8,000 in 2024 and shoot well past $10,000 in 2025 before a blow-off top starts the next bear market."
Oil and Ethereum
Guy Gotslak, co-founder and president of My Digital Money, said that while many analysts are focused on the ETH ETF talk, there is "one critical game-changer" that many are overlooking: oil.
"The TLDR version is that the oil industry of the Middle East could end up fully operating in the Ethereum blockchain," he said. "UAE, Saudi Arabia, and neighboring oil-heavy nations account for more than 20% of global oil exports. I don't have to discuss the importance of oil."
Gotslak noted that in 2022, "a Saudi Arabian [used] Ethereum to pay for a Mercedes Benz S580 from USA-based Jeff Wyler Automotive," and that "The process was said to have been faster than any wire transfer."
"While many may credit this to being a novelty transaction, the Middle East has been making concrete steps towards the blockchain," he said. "It hosted ETH Riyadh 2023, a conference dedicated to the Ethereum ecosystem and blockchain technology. The conference gathered developers and builders from Saudi and other regions in the Middle East."
He added that Dubai has also "started digitizing itself to ensure the efficiency of all government offices and to provide both local and visitor experiences with quick and efficient responses to needs. This will be made possible by using the blockchain and artificial intelligence," he said.
"Their goal is to 'achieve efficiency by using blockchain in 100% of applicable government services, creating and enabling blockchain ecosystem for startups and businesses, and to become a global thought leader by piloting cross-border blockchain cases,'" Gotslak said.
Part of this effort includes the goal of going paperless, and "all transaction, retail, wholesale, and government-controlled industries such as oil, will operate in the Ethereum blockchain."
"This is not just 'big,' this is a seismic shift in the global financial industry and the Ethereum blockchain will be at the center of it," Gotslak concluded.
Improvements to the network
Vince Yang, founder of zkLink, said: "All signs are signaling upside for Ethereum as the market shows spillover demand from the recent Bitcoin rally."
He noted that digital asset investment inflows are now at the highest level since Oct. 2021, with more than $1.76 billion flowing into these products over the past ten weeks, and "20% of that moving into Ether."
"Ethereum's open interest has also risen above the $8 bn level," a development that has not been seen since last November, he added.
"On a fundamental level, demand continues to surge for the most profitable chain as Ethereum's TVL has risen from $21 billion in October to $32 billion," Yang said. "The tech has also transitioned to full Proof of Stake (PoS) this cycle and no longer burns energy to produce blockspace. PoS also makes Ethereum deflationary to the tune of around 0.5% a year and existing Ethereum validators are earning 5.3% a year."
He also pointed to Ethereum's "thriving ecosystem of blockspace buyers in the form of Layer-2 networks, applications, and users," highlighting that "Five whole L2 blockchains are in the top 10 consumers of ETH blockspace, making them responsible for adoption and stimulating on-chain activities, thus increasing demand for ETH."
Yang said the thing that could potentially hinder Ethereum's growth would be if a spot ETH ETF was not approved this cycle, which would lead to Ether's price and adoption lagging behind Bitcoin.
He also identified a recession in the U.S. economy as a potential headwind. "Recently, there has been almost $200bn liquidity injected into the U.S. economy, causing RRPs to fall while TGA remains unchanged," Yang said. "Though this may not look bad, the practice of spiking liquidity is not sustainable in the long run for any economy. A recession could cause a re-factoring of all assets and we might not get the fairy tale ending we would like to see for crypto, let alone Ethereum."
Pelli Wang, co-founder of Bracket Labs, noted that ETH is "relatively undervalued compared with BTC" as its price has not increased as much throughout 2023.
"Moreover, there has been endless speculation for the BTC ETF approval, but there has been more muted discussion about the ETH ETF approval even though many large enterprises are building pilots and other use cases on ETH," she said. "Therefore, I think there is a good potential for ETH to double to $5,000 by the end of 2024."
Alan Scott, contributor at RAILGUN, said he thinks 2024 will "continue to see deep value enter into the Ethereum ecosystem."
"We're seeing a lot of pivoting and repositioning of 'Alternative L1s' moving towards being L2s," he said. "Since 'The Merge' (the switch to Proof of Stake), we've seen a net burn of ~300k-ish ETH. Many alt-L1s positioned themselves as 'ETH Killers,' but have come to realize Ethereum's death may never come. So, we've seen many blockchains start to position themselves as Ethereum L2s. This only adds to the value proposition of ETH."
"If I were forced to give a price guess, I would guess around the $6,000-$8,000 range," Scott said. "Ether scarcity will play a factor in ETH pricing."
Jeff Owens, co-founder of Haven1, said the upcoming Dencun upgrade "is likely to be a major catalyst for the ecosystem and ETH in Q1 2024."
Owens said the core aspects of the Dencun upgrade include "five critical Ethereum Improvement Proposals (EIPs), with EIP-4844 being the primary focus."
"EIP-4844 is a leap in scalability," he said. "Known as proto-danksharding, this EIP aims to expand the blockchain's capacity by integrating data 'blobs,' which are projected to significantly lower gas fees for layer 2 rollups."
"Proto-danksharding is poised to draw more users to Ethereum, especially through rollups, and will help catalyze layer-2 adoption," he said. "With over 90% of L2 transaction costs tied to L1 data storage, EIP-4844's data blobs are expected to slash L2 fees by at least ten times. Despite its technical complexity, the result will be straightforward for users - they will likely pay only a fraction of the current cost for L2 transactions, widening access."
Owens said that the expansion of transactions on L2's made possible by proto-danksharding "will likely cause a surge in transactions, especially with optimistic rollups already surpassing Ethereum mainnet in volume, boosting the overall economic activity on Ethereum."
"Although lower L2 fees might temporarily reduce ETH burning, the overall growth in Ethereum's transactional activity is expected to enhance its value in the medium term," he said.
When it comes to headwinds on Ethereum's path forward, Owens highlighted regulatory challenges, technical setbacks, and network congestion.
"Any delays or technical issues in these upgrades could negatively impact investor confidence," he said. "The network will still have issues when there are periods of high demand," which will continue to be perceived as a negative by many users.
"The Dencun upgrade, coupled with increasing excitement around Ethereum ETFs, is expected to sustain a bullish trend in Ethereum's price into Q1 2024," Owens concluded.
"We believe that upgrades to Ethereum relating to scalability will steal the show in 2024," said Jesper Johansen, founder and CEO of Northstake. "As user adoption of Ethereum grows, the protocol will need to scale its operational capacity to facilitate more network transactions.
Projects and integrations that increase the scalability of Ethereum's protocol will be one of the primary value drivers for ETH in 2024."
"Ethereum is as important and foundational to the growth of Web3 as large language models (LLMs) are for the advancement of artificial intelligence (AI) technologies," he said. "When investors fully understand the implications of how Ethereum changes the way we transact online, Ethereum will grow and become increasingly valuable."
Pavel Matveev, co-founder and CEO of Wirex, also sees the Ether burn mechanism as a positive force on ETH price, along with a rising interest in derivatives and the token's correlation with Bitcoin (BTC).
"The supply of Ether turned deflationary again," Matveev said. "About a month ago, the total supply of Ether started shrinking, dropping by over 44,000 ETH in the last 30 days. This reflects mostly the higher transaction activity observed on-chain: volumes are up and holding near the highest levels observed this semester."
"The interest in Ether derivatives is currently very high, reaching levels close to the highest point this year," he added. "This suggests that more people are getting involved in the market. Ether also remains highly correlated with BTC and still plays an important role in diversifying a cryptocurrency portfolio."
That said, Matveev noted that "the price of Ether has been underperforming Bitcoin's since June," as far more attention has been paid to the spot BTC ETF applications than the spot ETH
ETF applications
"Even though there are applications for Ether ETFs, they are still scarce, and would face a whole different challenge: the SEC treatment of PoS protocol native tokens has yet to be clarified," he said. "The question is: are staking services turning PoS tokens into securities?
If uncertainty remains, more centralized exchanges could shut down or stay away from staking activities."
Based on these factors, Matveev said a moderate price prediction for Ether at the end of Feb. 2024 is $2,700, and $4,000 by June.
And Jamie Turner, head of marketing at Neon EVM, sees ETH hitting a price of $2,500 by the end of 2023 and exceeding $3,000 by the end of 2024 as "all signs indicate that 2024 will be a bull run year."
Turner identified stability brought by the release of new regulations in the U.S., E.U., and U.K. as the main catalyst that will bolster the price of ETH and the broader crypto market.