Ethereum: Large Catalysts To Drive The Next Leg Higher

Summary Ethereum's supply/demand dynamics support a higher price. Ethereum has multiple catalysts to drive demand higher over the long term. The technicals point to further upside for Ethereum in the current price cycle. Major price moves may occur over the next few months. Ethereum USD ( ETH-USD ) has multiple large catalysts that are poised to drive long-term growth for the underlying price based on supply and demand dynamics. Ethereum's year-to-date price increase of 30% significantly outperformed the S&P 500's ( SPY ) 10% gain. Ethereum's technical outlook also supports another leg higher in the current price cycle. Tight Supply The price of anything comes down to the balance of supply and demand. For Ethereum, the supply is being constrained due to multiple factors. Technically, Ethereum doesn't have a finite supply the way Bitcoin USD ( BTC-USD ) is limited to 21 million coins ever to be mined. However, the supply of Ethereum is being lowered due to the dynamics of the market. On busy days, ETH is burning more in transaction fees than it issues to validators. This is visible through on-chain metrics. Ultrasound Money The chart above shows that Ethereum's supply peak occurred in 2022 at 120.5 million ETH. The supply has been decreasing slightly since then and is projected to continue to remain lower than the peak. The fee burn is 2.8k ETH per day vs. an issuance of 2.7k ETH per day. So, Ethereum is earning more in fees than it is paying out to validators in the form of staking. This steady decline in the supply should help keep upward pressure on Ethereum's price as demand increases. Ethereum ETFs as Catalysts Numerous Ethereum ETFs have been issued by various companies. It is not just the existence of Ethereum ETFs that makes this a catalyst; the way the market uses them leads to higher demand. Most institutions, pension funds, endowments, insurers, and corporate treasuries were probably never going to purchase Ethereum the traditional way through hard wallets. The existence of Ethereum ETFs makes buying, holding, and selling the crypto as easy as stock transactions. The large entities that I mentioned continually look for places to earn money for their investment portfolios. The top cryptocurrencies, such as Bitcoin and Ethereum, can be a part of this. The reason for that is the significant long-term outperformance of the top cryptocurrencies vs. traditional investments such as equities and bonds. The purchasing of Ethereum from these large institutions should help drive demand for ETH, putting upward pressure on the price. Stable Coins Recent legislation as part of the GENIUS Act paves the way for the United States to become the global leader in digital currency. This legislation creates a Federal regulatory system for stablecoins. The GENIUS Act ensures the stability and trust of stablecoins through strong reserve requirements. The legislation requires 100% backing for the stablecoins with short-term Treasuries or U.S. dollars. Issuers are required to make monthly public disclosures of what is comprised of the reserves. The idea behind creating support for stablecoins is to help drive the demand for U.S. Treasuries to ensure the global dominance of the U.S. dollar as the global reserve currency. Many stablecoins are built on the Ethereum Blockchain, which is the reason why this is bullish for ETH. Stablecoins have grown into a $280 billion market , with about $147 billion of that on Ethereum. Multiple industry pundits, such as VanEck's CEO Jan van Eck, Bitmine Chairman Tom Lee, and BitMEX co-founder Arthur Hayes, are bullish on Ethereum as a result. Banks and other financial institutions will issue and/or need to have a way to accept stablecoins. Ethereum is what can make this happen. Ethereum's Advantage Ethereum's competitive advantage is its technical standard known as the Ethereum Virtual Machine [EVM]. This is what powers smart contracts on the Ethereum network. The EVM is like a virtual computer that everyone in the world can use. The EVM is distributed and secured by the blockchain. Smart contracts are executed on the EVM. These smart contracts can include financial transactions (automated payments, document verification), real estate, insurance, secure sharing of patient data in healthcare, legal contracts, and more. Stablecoins are set up as smart contracts and executed by the EVM to process transfers. Ethereum Treasury Companies Another catalyst for Ethereum is the emergence of Ethereum treasury companies. We've seen Strategy ( MSTR ) essentially operate as a bitcoin treasury company (buying large quantities of bitcoin as an investment). Companies such as Bitmine Immersion Technologies ( BMNR ) and SharpLink Gaming ( SBET ) have been doing something similar with Ethereum. The advantage that Ethereum treasury companies have with ETH over bitcoin is that they can earn money from staking. Staking is similar to earning dividends while holding Ethereum. The amount earned from staking varies based on various factors such as the amount of ETH staked, the amount of active validators, the demand for Ethereum transactions, etc. Currently, the annual rate to stake Ethereum is 1.86% . The annual rate was over 4% in August 2024 . The existence of Ethereum treasury companies should add to the total demand for ETH, putting upward pressure on the price. Technical Perspective Ethereum (ETH-USD) Monthly Price Chart w/ RSI & MACD (TradingView) Ethereum's monthly chart above shows that the peak in each cycle occurred after the price increased into deep overbought territory above 80 on the RSI. The good news is that the RSI is currently below the overbought level at about 64. It is in bullish territory above the 50 level. The MACD is also bullish as the blue line crossed above the red signal line and the histogram bars turned from red/pink to green. This shows that ETH is in a positive uptrend on the long-term monthly chart. The price can be volatile, and ETH is experiencing a pullback from the all-time high price of $4,954. If this cycle is consistent with the previous two cycles, the price of Ethereum has more room to move higher. We could see the RSI move deep into overbought territory near the peak of this price cycle. Ethereum's price cycles tend to correlate well with bitcoin's price cycles. Bitcoin's last two price cycles lasted 1,064 days from the bottom to the peak. If this cycle lasts about the same time, bitcoin's price would peak around October 2025. Of course, there is no guarantee that this cycle will last exactly as long as the past two cycles. There does tend to be a strong upward move at the very end of each price cycle. I don't think we've experienced that blow-off top yet in this cycle since the RSI didn't move deep into overbought territory yet. Risks for the Investment Thesis It is possible that the price peak already occurred for this price cycle. There is no guarantee that the current price cycle will last as long as the previous cycle. It is also possible that ETH may not move deep into the overbought area during this current cycle. The price of Ethereum is highly volatile. The price can drop 80% to 90% from the price peaks to the price bottoms over the course of each major price cycle. So, investors may wish to use technical analysis on the monthly chart to pick buy and sell points to maximize gains. Competition could be another risk for Ethereum. Other smart contract blockchains such as Avalanche ( AVAX-USD ), Solana ( SOL-USD ), Cardano ( ADA-USD ), etc. could develop features that are more attractive than Ethereum. It is possible that one or more competitors could catch on and overtake Ethereum as the smart contract blockchain leader. This could have a negative impact on Ethereum's price. Ethereum's Outlook The supply and demand dynamics look positive for Ethereum over the long term. However, it is important to keep a close eye on the technicals since a sharp move deep into overbought territory on the RSI on the monthly chart is typically followed by a significant drop of over 80% from the price peak. Therefore, profit-taking would be wise near the peak of the price cycle. My conservative price target for this price cycle is $7,500. This is at the Fibonacci extension level of 1.618. The more aggressive price target is at the 3.618 Fibonacci level for a possible ETH price of $15.650. Ethereum did hit the 3.618 Fibonacci level in the last price cycle. Investors should keep a close eye on Ethereum's price action over the next few months to have an exit strategy before the next bear market begins.