ETH Bulls' Prospects Following Ether’s Recent 17% Surge

Ether’s prospects of exceeding $5,000 are closely tied to institutional purchases, yet increasing competition and restrained metrics in derivatives keep market optimism in check.

Key Insights:

Ethereum currently leads with a $100 billion total value locked (TVL), even as its transactional activity wanes, allowing rivals to thrive by undercutting fees.
The accumulation of Ether through spot ETFs and corporate holdings could lead to a supply crunch if it clears the $5,000 mark.

Ether (ETH) has surged 14% in the last week, breaking above $4,500 for the first time in two weeks. Nevertheless, indicators in the derivatives market suggest lingering skepticism, prompting traders to ponder their motivation and whether ETH can maintain this momentum.

ETH Futures Premium
[ETH 60-day futures annualized premium compared to spot markets. Source: laevitas.ch]

Over the past month, ETH monthly futures displayed a 7% premium over the spot markets — situated comfortably in the 5% to 10% neutral range essential for offsetting extended settlement periods. However, this indicator has failed to display bullish sentiments since February. Despite a substantial rally of 100% in ETH over the six weeks preceding August 13, confidence remains absent.

Increased Competition in DEX Activity

Many analysts believe the observed reluctance among Ether traders stems from mounting competition, particularly following the launch of the Official Trump (TRUMP) token on Solana. The more user-friendly approach of decentralized exchanges on platforms like Solana, BNB Chain, and Tron has notably outperformed Ethereum regarding both fees and number of active addresses.

Blockchains Ranked by Fees
[Rankings of blockchains by 30-day network fees in USD. Source: Nansen]

Ethereum’s network fees fell by 30% last month, with transaction volumes dropping by 10%, according to Nansen. Conversely, fees for rivals like BNB Chain and Avalanche have surged significantly in the same timeframe, elevating transaction volumes by 60% or more. Even though deposits in Ethereum smart contracts increased by 5%, traders express fears that competitors are rapidly bridging the gap.

Ethereum Protocols Ranked by TVL
[Top Ethereum protocols ranked by TVL in USD. Source: DefiLlama]

Despite some significant gains in the Ethereum TVL, such as the Ethereum-based stablecoin protocol Ethena showing an 18% increase last month, not all news is promising: the TVL on Pendle has witnessed a decline of 50%, with negative pressure on deposits observed on lending platforms like Morpho.

The options delta skew for Ether has remained neutral, indicating that both put and call options are traded at similar levels. An increase in optimism would typically lower this indicator, suggesting that the current market does not feel any major shift in sentiment.

ETH traders may feel uncertain about the potential approval of spot ETFs for altcoins by the US SEC, with analysts predicting a likelihood of over 95% for October approvals for Solana, Litecoin, and XRP. Such developments could bolster their networks while escalating competition in the altcoin arena.

The trajectory for Ether likely relies on persistent accumulation by institutional investors through spot ETFs, along with corporate adoption of ETH as a reserve asset. Bitmine Immersion Tech (BMNR) has notably added nearly $12 billion in Ether recently, raising prospects of a supply shock that could drive prices past the $5,000 threshold.

This information serves educational purposes and is not investment advice. Perspectives shared are solely those of the contributors and do not necessarily represent the viewpoint of Cointelegraph.