Ethereum is a decentralized blockchain platform that powers one of the most popular digital currencies, “Ether.” The currency first gained popularity in 2017 when its price rose from $8 at the beginning of the year to $826 at the end. Crypto as a whole is headed toward a bullish run, with Ethereum trading above $1600 currently.
However, the price of Ethereum, like any cryptocurrency, is highly volatile and is affected by a multitude of factors. If you are interested in Ethereum coins, you must analyze these factors to make a wise choice.
Let’s have a look at the factors affecting the price of Ethereum.
Demand and Supply
Ethereum, like every other cryptocurrency out there, is decentralized. It means that no central bank controls its price, and the rise and fall of the price depends largely upon the demand and supply of the altcoins. In the case of bitcoin, there can only be 21 million bitcoins, so the supply is restricted, affecting the price greatly. But for Ethereum, there can be an unlimited number of altcoins.
How can the price of Ethereum be controlled through its supply, you might wonder. Although Ether has an unlimited supply, there are restrictions on the number of Ether coins that can be mined each year.
As more people buy Ether, its demand increases, and since the supply of altcoins mined remains the same, the price of Ether rises. At present, this is the market situation, and those with a good sense of demand and supply can easily make an Ethereum price prediction.
People’s Fear of the Recession
For decades, the outlook for investment has always been impacted by people’s fear of a recession. Investors tend to sell off their risky assets when the outlook is bleak.
Ethereum, a decentralized digital currency, tends to be riskier than the stock market and is greatly affected by fear of a recession. The crypto market crash in June this year was partly due to the rising inflation and the fear of recession. The FED’s aggressive policy and consistent interest rate increase further raised investors’ fear of recession.
Crypto investors, especially those who invested in bitcoin and Ethereum, started selling their digital assets and as a result, the crypto market lost more than $1 trillion in value in a matter of weeks.
Economic stability is yet another factor that affects the prices of Ethereum. When the world economy runs smoothly, investors tend to take risks with their investments.
Ethereum, being a risky investment, tends to perform well during stable economic conditions. However, as soon as the economic outlook moves towards instability, investors start to sell their digital assets. This is what happened with Russian investors when Russia invaded Ukraine.
Major cryptocurrencies, including Ethereum and bitcoin, saw a rise in sell-off from Russian investors as soon as the sanctions hit. In contrast, Ukrainian investors saw a rise in buying of these currencies. For Ukraine, cryptocurrencies are proving to be a lifeline as more people donate through them.
Regulations Set by the Countries
Most of the crypto market is still unregulated, but regulations are underway for major cryptocurrencies, including bitcoin and Ethereum. Regulating the crypto market will help to control the volatility of the market and will protect investors from fraud, as is the case with the stock market.
Although many investors only invest in crypto coins because of their unregulated nature, bringing the crypto market into a regulated framework will certainly prove beneficial because some large investors are waiting on the sidelines for this to happen. In March this year, the Biden administration signed an executive order to address the risks involved in cryptocurrency trade and to harness the benefits of the altcoins and their underlying technology. Some other countries have followed suit and even launched their own cryptocurrencies. These regulations will certainly be beneficial in controlling the volatility of cryptocurrencies, including the Ethereum coins.
A financial outlook means to project the performance of an asset based on its historical performance. The prices of Ethereum are also impacted by the financial outlook of the crypto market as a whole. When the financial outlook tends to be moving upward, the prices of Ethereum and other major cryptocurrencies increase and vice versa.
Recently, the crypto market has become more synced with the traditional stock market, posing new risks for investors. So, the prices of cryptocurrencies move upward when the stock market performs well. Before the Covid-19 Pandemic hit the world, crypto markets were very little correlated with the stock markets, but now, the prices of major cryptocurrencies, including the Ethereum coins, move in sync with the stock market outlooks. Most investors started investing in altcoins as a measure to diversify their risks, but since altcoins such as Ethereum move in sync with the stocks, it kills the purpose of diversification.
The current financial outlook for the stock market looks bullish, and the results have also been depicted in the prices of the major cryptocurrencies, including Ethereum and bitcoin.
Perspective Of Crypto
Lastly, the perspective of crypto also affects the prices of cryptocurrencies.
Currently, nearly one-third of crypto investors originate from the US. It means that cryptocurrencies experience the highest acceptance level in the US. The higher crypto’s acceptance among investors, the higher its price because the price of cryptocurrencies is largely dependent on the demand and supply for altcoins.
No matter how popular a crypto coin is, it is volatile. Although cryptocurrency started with the promise of being an anonymous digital currency being only driven by demand and supply, several other factors have also started affecting its value with time. However, the more acceptance there is in crypto, the higher prices will be because it’s originally based on demand and supply.
Ethereum is the second most popular cryptocurrency, and its value is affected by several factors. Suppose you’re to invest in Ethereum altcoins. In that case, this article provides information about the factors affecting the prices of Ethereum altcoins and how to address the risks involved in investments in Ethereum.