What factors influence Ethereum’s value? Keep your eyes on them in 2023
Ethereum’s popularity spiked over the last few years, transforming it into the second most prevalent cryptocurrency after Bitcoin, so its price also increased. Ethereum’s price has continued to rise since its launch until it reached an all-time high of $2985. However, considering the volatile nature of the market, its value has fluctuated dramatically throughout 2022, and crypto specialists believe that 2023 will also bring some rapid and spectacular fluctuations.
Knowing what factors impact Ethereum price usd and value enables investors to make smart decisions in buying and selling digital assets. After the altcoin registered a significant price boost in 2021, it consolidated its status in the sector. For the first time in history, people no longer think only Bitcoin is essential when building a crypto portfolio. Investors find it wise to add both cryptocurrencies to their wallets because they have different features.
If you want to add Ethereum to your portfolio, it’s crucial to understand the changes in its price before buying coins. Research its history in the market and familiarise yourself with its market movements before investing in a volatile asset.
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A quick introduction to Ethereum
Ethereum is a decentralised, open-source blockchain that introduced smart contracts, an innovative functionality in the sector. The programmer Vitalik Buterin launched the Ethereum blockchain in 2013 as a network meant to solve the dissatisfaction with Bitcoin’s limitations. Even if all cryptocurrencies are volatile digital assets, experts consider Ether one of the most flexible and stable in the sector because it has a solid use case of the blockchain. Ethereum uses blockchain technology in a revolutionary way, as a software platform that facilitates the creation of decentralised apps, like smart contracts, and as a network that enables third parties to build and run applications. Ethereum was created to serve ambitious purposes in decentralising the trade of digital currencies and providing different benefits to organisations.
Ether is the native token of the blockchain, and many name it the Queen of cryptocurrency (Bitcoin is king). Ether is the currency used to buy decentralised apps that run on the Ethereum blockchain. Miners also receive Ether as an incentive to run the Ethereum protocol on their computers.
Ethereum’s value is affected by a number of market forces and factors specific to cryptocurrencies. Specialists state that a mix of factors will impact Ethereum’s short and long-term fluctuations in 2023.
Supply and demand of cryptocurrency
Suppose you’re a seasoned investor. You know that the law of demand and supply comes straight from the pages of an economics book. It refers to the relationship between an asset’s price and its demand/supply. Suppose the market faces a sell-off in 2023, the demand for ETH will fall, and therefore, the price will drop. If, on the contrary, the market gets bull and the demand increases, the price will definitely go up.
The theory also regards the supply-price relationship in the ETH sector. When there is a short supply of ETH, the price will go up and vice-versa.
Domination of Bitcoin
As mentioned earlier, Bitcoin is king in the crypto market, and therefore it has influence over the value of altcoins. When its price increases, altcoins’ value also goes up proportionally. And as you can assume, it also happens in reverse, so the Ethereum price decreases when Bitcoin’s value goes down.
Besides the fluctuations in Bitcoin’s value, the coin that dominates the market also impacts Ethereum’s evolution. Since its launch, Bitcoin has been the number one digital currency, according to market capitalization, and the most active in investors’ wallets. However, in July 2021, Ethereum flipped Bitcoin by the number of daily active addresses in the blockchain, and its price increased. If something like this happens again in 2023, Ethereum’s price could spike.
Ethereum is considered a legacy coin
The digital currency sector offers investors access to different assets to appeal to diverse segments. Legacy cryptocurrencies like Ethereum and Bitcoin are ideal for being held in the long run. Experts believe that they carry less risk than newer projects because they have survived multiple bear markets and challenges. Since the pandemic triggered a market crash, both Ethereum and Bitcoin have low volatility compared to newer digital coins. Their volatilities peaked at the beginning of the pandemic, and then they remained relatively low.
In 2021, younger coins registered escalating volatility and were subjected to a correction in May. Even if Ethereum’s value decreased in 2022, it remained constant despite global events like Russia’s invasion of Ukraine.
Market trends
When Ethereum registered a spike in popularity and took over second place at the top of the most favoured cryptocurrencies, its price skyrocketed from $10 to around $1,400 in a short period. The altcoin reached impressive peaks over the years, but it also experienced struggles over time. The crypto market is an exciting place due to its volatility. Many investors consider its drastic and rapid movements intimidating and exhilarating at the same time. These ups and downs have a huge impact on mining profitability because mining profitability and speculative actions are essential factors in determining Ethereum’s price.
The bearish and bullish moods of the crypto market influence all digital currencies, and Ethereum is no exception. Its value will drop or swell under the shifts in the market and changes in trading volume and global market capitalisation. Due to its smart contract compatibility, Ethereum has a first-mover advantage. The blockchain hosts over 80% of dApps and dominates the sector, even if other networks also enable dApps creation. The increase in popularity of DeFi, metaverse, and NFTs also impacts ETH’s price.
Network upgrades
The development of Ethereum’s network includes several upgrades that will definitely reflect its value. It experienced several extensive upgrades over the years. Buterin has always meant for the platform to go through four upgrades, Frontier, Homestead, Metropolis, and Serenity. 2022 brought Ethereum 2.0 or Serenity to life, addressing bottlenecks and completing the Merge. The period before and after the Merge brought fluctuations in ETH’s price because it was a phenomenon very few understood.