3 reasons why Ethereum price might not hit $5,000 anytime soon
Ethereum price might be bullish in the short term but there are a handful of factors that could keep the price pinned in its current range.
Ether (ETH) price has been in a downward spiral ever since the Ethereum co-founder Vitalik Buterin presented at the StartmeupHK Festival 2021. In a fireside chat session on May 27, Vitalik stated that several internal team conflicts caused the Proof-of-Stake migration to delay its launch.
As reported by Cointelegraph, ‘Phase One,’ which introduces scalability through sharding, has been postponed to 2022. Furthermore, DeFi’s inherently decentralized nature might not be entirely beneficial because the sharding-style processing would need to run transactions through a relay chain.
It’s impossible to pinpoint the reason behind Ether’s sharp fall from its all-time high, but the surging gas fees certainly impacted investors’ expectations. Not only did it made evident how limited the network was, but it also incentivized traders to experiment with alternative networks like the Binance Smart Chain (BSC) and Polygon’s layer-2 solution.
The chart above shows that the $45 average gas fee took place a whole month after the Berlin upgrade went live on April 15. The consensus in the Ethereum community was that Berlin was less impactful in the short term but paved the way for the awaited London hard fork’s EIP-1559 protocol on Aug. 4.
This takes us to one of the 3 factors that could negatively impact Ether’s price in the short term.
London Fork delay
The Ethereum London hard fork is part of the roadmap to the final Eth2 release in 2022. The long-awaited update is scheduled for Aug. 4 but has been delayed already as the previous schedule mentioned late July.
Miners will be the most affected by the EIP-1159 proposal, which aims to burn part of the fees generated on the Ethereum blockchain, hence reducing their revenue. Furthermore, EIP-3554 introduces an incremental difficulty adjustment that incentivizes the migration to the new Proof-of-Stake blockchain.
Ethereum developers’ delivery track record also does not inspire confidence. If a partial upgrade were to take place and the more controversial changes were delayed, Ether price could slide as a portion of the current rally is build on the hype surrounding the hardfork.
This time around, the main concern isn’t technical but social. Once it becomes clear for Ethereum miners that their revenue source will be gradually cut off, it is a matter of time until some competing network benefits.
Even though most smart contract blockchains have been designed for the proof of stake consensus model, some lesser-known projects could change their algorithm to support Ethash mining.
Analysts should not discard the possibility that Binance Chain or Solana could implement an additional security layer using the extra hashing power caused by an Ethereum miner exodus. Although this scenario is distant, these movements would undoubtedly put pressure on Ether price.
The longer it takes for Eth2 to be fully implemented and for dApps to upgrade their code to support parallel processing (shardin) capabilities, the higher the incentives for adding multi-chain support.
Curve and AAVE, the two leading DeFi protocols by total value locked, have both added support for blockchains other than Ethereum. Meanwhile, Polygon holds $550 million worth of Curve contracts and AAVE another $1.8 billion, according to data from DeFi Llama.
In the end, the most likely “Ethereum killer” would be the network itself because postponing the scaling solution would push users and dApps to alternative solutions. At the same time, the migration to PoS opens room to strengthen competing blockchains.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.