Ethereum price: Upward surge noted but fears of near-term volatility continue to persist

After forging a remarkable comeback over the last 48 hours, Ether may once again be set to test the US$1,400 threshold.

• Experts suggest that Ethereum’s market sentiment is currently near its 2017 highs.
• ETHs recent slip to around the US$915 mark was in large part due to investors cashing out their profits after the asset hit a relative high of US$1,348 on January 10.
• Despite its strong fundamentals, fears surrounding Ethereum’s scalability continue to loom large.

Ethereum, the second-largest cryptocurrency by total market capitalisation, has continued on its ascent after crashing earlier this week, which saw the premier altcoin dip as low as US$915. At press time, ETH is trading at US$1,225, with the currency’s technical indicators suggesting that it may once again be on course for testing its all-time high value of US$1,448 in the near future. On the heels of its latest run, Ether is now exhibiting a daily gain of around 10%.

Commenting on the currency’s short-to-medium-term valuation prospects, Justin Barlow, a research analyst for The TIE, a provider of alternative data for digital assets, pointed out to Finder that as far as the retail side of things are concerned, sentiment for ETH is near its 2017 highs and that it is quite likely that the digital asset will smash its previous all-time high value in 2021, adding:

“ETH will likely continue to see volatility. The addition of new derivatives products should help dampen this but will take some time to do so. It took the CME’s Bitcoin futures product, for example, nearly a year to contribute sizaeble volume to the market.”

On the matter, Jay Hao, CEO of cryptocurrency exchange OKEx, is of the opinion that Ether’s recent correction and subsequent rise was somewhat expected – and certainly not unusual – especially when taking into consideration historical data from the altcoin’s previous bull cycles, adding: “99% of ETH addresses were in profit as it neared its all-time-high and it makes sense that many investors would want to take advantage.”

Hao also reminded investors that most cryptocurrencies, from the very beginning, have showcased a high degree of volatility and that while that may be usual for people who have been around the industry for a long time, such swings can be intimidating for new entrants. That being said, he did highlight that the fundamentals surrounding ETH look strong and this will most likely continue to reflect in the price of the currency in the long term.

“In the short term, it's very possible that we will see several more price corrections. This is the nature of the market and price never goes up in a straight line”, he added.

Institutional entry and DeFi will be key for ETH's future performance

While Bitcoin has been on the receiving end of a lot of institutional interest over the last year or so, Ether too has gained considerable mainstream traction over the same time window. This is probably best highlighted by the fact that the digital currency has witnessed a significant amount of interest from regulated funds such as 3iQ as well as with the introduction of the Chicago Mercantile Exchange’s (CME) upcoming ETH futures offering.

Commenting on Ether’s ever-increasing market clout, Jae Chung, co-founder of CryptoLocally, a community governed P2P crypto marketplace, pointed out to Finder that a lot of newcomers to this constantly evolving financial sphere are clearly expressing their will to buy Ethereum due to the increasing interest shown by mainstream media as well as the public at large, adding:

“In terms of numbers, we noticed a 60% increase in the total ETH volume traded on our platform as compared to last month. Other platforms too are noticing the same wave as well as unprecedented institutional demand. This buying pressure is the catalyst behind the recent new all-time highs for Bitcoin and the parabolic surge of Ethereum.”

Also, as the crypto market continues to mature, more and more investors are now beginning to understand that crypto is a long game that comes laden with the threat of massive monetary swings. For starters, the transition to ETH 2.0 still seems to be some time away and even then it is anyone’s best guess as to whether the recent DeFi boom can actually result in the creation of a real, sustainable alternative financial system. On the issue, Hao opined: “This is not going to happen overnight as persistent problems around scalability and technological vulnerabilities must be addressed.”

A similar outlook is shared by Karl Samsen, executive vice president of capital markets at GDA Capital, who believes that there are pressing scaling issues with ETH that have not yet been sorted out adequately and for that reason a larger collective of blockchains such as Solana and even the Constellation Network stand to become more attractive to devs as practical cross-chain solutions.

PSA: “Volatility is not a bad thing”

Though a number of naysayers continue to harp on the "volatility" aspect of crypto every time a major price correction is witnessed, Barlow believes that it is essential for everyone to understand that ETH will likely continue to witness what many consider to be a “high level of volatility”, especially as the asset enters the next chapter of its "price discovery" phase, adding: “ETH’s value probably won’t stabilise until it is on the balance sheets of major tech companies and investment firms, which may take some time.”

The same sentiment is shared by Hao who believes that as the DeFi economy continues to grow, volatility will naturally increase over the coming year and maybe even beyond, even going as far as saying that we may be a fair bit away before we see Ether’s value start to stabilise. However, he did then proceed to say:

“In the long term, the very model of Ethereum is that its inflation level eventually trends to zero and the asset grows scarcer with staking lockups and proposed burning of ether in transactions meaning that ETH price would eventually rise over time.”

Lastly, another aspect of Ether that needs to be grasped by the global investor community according to Chung is that the currency is not only a speculative trading tool but rather a technological innovation whose utility has continued to broaden with each passing day, stating: “From smart contracts to decentralised finance (DeFi) applications and the rise of Non-Fungible Tokens (NFTs). Ethereum has proven again and again to be at the forefront of blockchain innovation”.

Disclosure: The author owns a range of cryptocurrencies at the time of writing

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