What is behind Ethereum’s massive price gains

Ethereum (ETH) has gained nearly 30% this week, bringing it closer to its all-time May high of over $ 4,360. Today, it broke the $ 4,000 mark for the first time in three months, and many analysts were optimistic that the price could be raised further.

Several factors are driving Ethereum’s growth, from an increase in demand for non-fungible tokens (NFTs) to an overall rise in cryptocurrency prices. Let’s look at some of the reasons in more detail.

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1. DFTs are booming

NFTs are a unique type of digital collectible. They can be a work of art, like Mike “Beeple” Winkelmann’s work titled “Everydays: The First 5000 Days,” which Decrypt said sold for nearly $ 70 million earlier this year. NFTs can be sports trading cards or contain video clips of historical sporting moments. They can even be in-game assets purchased by players, including virtual lands or character weapons and outfits.

The special thing about NFTs is that copyright, authorship and ownership information is encoded in the token and stored on the blockchain. So while anyone can share a copy of Beeple’s art, only one person can own the NFT – it’s kind of like having a signed edition.

You might be wondering what NFTs have to do with Ethereum. Well, a significant part of the NFT market is hosted on the Ethereum network. This means that when people buy and sell NFTs, most of the time they need ETH to do so. And the more demand there is for ETH, the more the price will increase.

According to Token Terminal, a financial data aggregator for blockchains, more than $ 560 million in revenue has been generated on Ethereum in the past 30 days.

2. There are fewer Ethereum tokens available

One of the reasons people are bullish about Ethereum is that its upgrade in early August was generally viewed as a success. The upgrade – also known as the London hard fork – also means that the number of ETH tokens on the market will grow more slowly.

One aspect of the hard fork was a code change that means ETH tokens will be burned as part of every transaction. This limits the number of ETHs in circulation and also, in theory, reduces gas costs.

According to data from CoinMarketCap, the total market cap of the cryptocurrency has grown from $ 1.57 trillion a month ago to $ 2.27 trillion today. And several of the big winners – like Ethereum – are programmable blockchains with smart contract capabilities. Smart contracts are tiny pieces of code that live on the blockchain.

For example, the price of Solana (SOL) has increased by over 285% this month. And Cardano (ADA), which will launch smart contract capacity on September 12, rose nearly 125%. This is not so surprising since smart contracts are the special sauce behind NFTs.

Can he bear this price?

The cryptocurrency industry is notoriously unpredictable, and whenever there is a significant rally you will find plenty of warnings that the market is on the verge of a crash. We may well be on the verge of seeing a repeat of the extraordinary price hikes followed by big drops from 2013 and 2017.

Ethereum still faces issues of high gasoline costs and slow transactions. He’s working on an upgrade to Eth2, which will fix some of these issues. But that won’t be over until 2022.

Still, it’s hard to underestimate the importance of being the first player – according to State of the dApps, nearly 80% of apps are built on the Ethereum network. So far, cheaper and faster blockchains have struggled to reduce this figure, suggesting that Ethereum will retain its dominance for some time to come.

If you are investing for the long term, it is exciting to see these dramatic gains. But if the price drops next week, it’s important to keep those fluctuations in perspective. After the lows of 2013 and 2017, the market finally came back and hit even higher. And Ethereum, which is available at most major cryptocurrency exchanges, is one of the strongest digital currencies and one of the most likely to stand the test of time.

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