3 reasons why Ethereum price might not hit $5,000 anytime soon

blue silver ethereum eth coins falling from black scene digital currency coin financial token exchange promoting 3d rendering scaled

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.

Ether price in USD at Coinbase. Source: TradingView

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.

Ethereum 7-day average gas fees in USD. Source: CoinMetrics

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.

Miner exodus

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.

Multi-chain dApps

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.

Ronnie Huss

Ronnie Huss

Leave a Reply

Your email address will not be published. Required fields are marked *

Share:

Share on telegram
Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

Related Posts

bitcoin
Bitcoin (BTC) $ 67,585.11
ethereum
Ethereum (ETH) $ 3,782.08
tether
Tether (USDT) $ 0.999402
bnb
BNB (BNB) $ 596.13
solana
Solana (SOL) $ 169.44
staked-ether
Lido Staked Ether (STETH) $ 3,775.67
usd-coin
USDC (USDC) $ 0.999887
xrp
XRP (XRP) $ 0.523116
dogecoin
Dogecoin (DOGE) $ 0.164501
shiba-inu
Shiba Inu (SHIB) $ 0.000028
cardano
Cardano (ADA) $ 0.453131
the-open-network
Toncoin (TON) $ 6.45
avalanche-2
Avalanche (AVAX) $ 36.55
chainlink
Chainlink (LINK) $ 18.65
wrapped-bitcoin
Wrapped Bitcoin (WBTC) $ 67,545.10
polkadot
Polkadot (DOT) $ 7.19
tron
TRON (TRX) $ 0.112022
bitcoin-cash
Bitcoin Cash (BCH) $ 467.51
near
NEAR Protocol (NEAR) $ 7.65
uniswap
Uniswap (UNI) $ 10.58
matic-network
Polygon (MATIC) $ 0.718943
litecoin
Litecoin (LTC) $ 83.69
pepe
Pepe (PEPE) $ 0.000015
internet-computer
Internet Computer (ICP) $ 12.15
fetch-ai
Fetch.ai (FET) $ 2.21
leo-token
LEO Token (LEO) $ 5.96
dai
Dai (DAI) $ 1.00
wrapped-eeth
Wrapped eETH (WEETH) $ 3,930.87
ethereum-classic
Ethereum Classic (ETC) $ 30.49
render-token
Render (RNDR) $ 10.30
aptos
Aptos (APT) $ 9.12
dogwifcoin
dogwifhat (WIF) $ 3.83
renzo-restaked-eth
Renzo Restaked ETH (EZETH) $ 3,737.57
hedera-hashgraph
Hedera (HBAR) $ 0.103562
cosmos
Cosmos Hub (ATOM) $ 8.69
arbitrum
Arbitrum (ARB) $ 1.15
immutable-x
Immutable (IMX) $ 2.23
mantle
Mantle (MNT) $ 1.00
kaspa
Kaspa (KAS) $ 0.137937
filecoin
Filecoin (FIL) $ 5.79
crypto-com-chain
Cronos (CRO) $ 0.116493
stellar
Stellar (XLM) $ 0.106860
first-digital-usd
First Digital USD (FDUSD) $ 1.00
the-graph
The Graph (GRT) $ 0.311497
ethena-usde
Ethena USDe (USDE) $ 0.999402
blockstack
Stacks (STX) $ 1.94
okb
OKB (OKB) $ 45.73
optimism
Optimism (OP) $ 2.50
bittensor
Bittensor (TAO) $ 396.78
floki
FLOKI (FLOKI) $ 0.000271