What Needs to Happen for Ethereum (ETH) to Hit $4K?

Scalability, institutional adoption, and sustainable DApp ecosystem growth are Ethereum’s weak points.

The last time Ether traded above $4,000 was on March 14, more than two months before the US Securities and Exchange Commission approved Ether as a spot exchange-traded fund (ETF) on May 23. Investors are now wondering if the bullish momentum has peaked and, if not, what could trigger a long-term increase above $4,000. The spot Ether ETF launch was underwhelming.

Market Conditions

The lackluster performance of the bitcoin market is partly to blame for investors’ lack of zeal. Currently, the total market capitalization of the industry stands at $2.42 trillion, 16.5% less than the $2.82 trillion peak reached on March 14, 2024. One contributing factor is the apparent effectiveness of the US Federal Reserve’s policy to contain inflation without inducing a recession, which has diminished the demand for alternative assets.

Ether’s Specific Issues

In just two months, Ether’s value relative to Bitcoin (BTC) has decreased by 10%. This decline is partially due to the $406 million net withdrawals from all Ether spot ETFs in the US since their launch on July 23, primarily focused on Grayscale’s offerings.

The total value locked (TVL) of the Ethereum network has remained at ETH 17.8 million for the past two months, indicating that ecosystem development may have stalled. Ethereum’s layer-2 scaling solutions are allegedly encouraged by its gas fees, which have been above $1.8 for the last few months, according to some observers. According to L2Beat data, the TVL for these solutions has stayed comparatively stable at ETH 12.9 million over the last two months.

Institutional Investor Interest

More institutional investor interest is required for Ether to recover the $4,000 support level. This may manifest as a US trend of net spot ETF inflows or, at the very least, as a halt to withdrawals from the Grayscale ETHE fund. Traders would anticipate confirmation when institutional money enters the market by calculating the TVL of the ecosystem.

Nevertheless, some investors are losing faith in the rise of decentralized applications (DApps) deposits. This pessimism stems from the involvement of venture capital firms or enterprises that attract significant inflows prior to airdrops but fail to maintain the initial excitement. As a result, increases in other on-chain measures, such as the numbers of active addresses, ought to coincide with TVL growth.

Expanding and Addressing Ethereum’s Roadmap

In addition to expanding, Ethereum TVL needs to address its roadmap. Ethereum supporters argue that the project’s decentralization is considerably better than that of rivals such as Tron, BNB Chain, and Solana. However, this argument is refuted by the fact that respectable investment businesses prefer to start their initiatives in other locations. For example, on July 23, Solana’s Libre was chosen by US-listed asset management Hamilton Lane to begin a tokenization initiative.

More worryingly, Solana has surpassed Ethereum in terms of decentralized exchange (DEX) trading volumes, posing a threat to Ethereum’s dominance among individual traders. According to DefiLlama statistics, Solana surpassed Ethereum in July with a 29.6% DEX market share, driven by memecoins introduced on Pump.fun.

Scalability Enhancements

More precise timeframes for Ethereum’s proposed scalability enhancements—such as parallel processing through sharding and mitigating miner extractable value—are necessary for Ether’s sustainable price increase. Proposed modifications like Danksharding aim to significantly improve data availability by raising the existing limit of one blob per block to 64.

Verkle trees are anticipated to be introduced in the upcoming upgrade, known as the Pectra fork, which will lower storage needs and improve data accessibility. The introduction of zero-knowledge SNARKs, expected to enhance privacy and condense transaction data into concise proofs, reducing the blockchain’s storage needs, is another development investors are eagerly anticipating.

It is still possible for Ether to reach $4,000 in 2024, but only if the issues with institutional adoption, scalability, and the expansion of the DApps ecosystem are resolved.