Ethereum price forecast: two big threats to further growth
The Ethereum price depends on DeFi popularity and whether ETH 2.0 launches a year late
There have been some frenzied Ethereum price forecasts following breakneck growth in the decentralised finance sector. The total value locked in DeFi protocols has more than trebled since July – and given that most of these projects are built atop of the Ethereum blockchain, this has served as rocket fuel for ETH prices.
But this doesn’t necessarily mean that the Ethereum price prediction is brimming with optimism as we sprint headlong into the second half of 2020. Indeed, there are some big risks facing ETH prices in the coming months.
Ethereum price news
It’s often difficult to predict whether the Ethereum price will go up. Even the most upbeat pundit at the start of the year would have been taken aback by how ETH has grown since the start of January. At the time of writing, the world’s second-largest cryptocurrency is up 209.2 per cent on where it was on New Year’s Day.
What makes this all the more extraordinary is how, in a rare turn of events, Ether has actually managed to outpace Bitcoin rather handsomely. By contrast, BTC has only risen by 63.3 per cent over the same period. The challenge now is trying to ascertain whether or not this is a trend that’s going to last.
ETH managed to turn the tables on BTC fairly suddenly. Back in early May, Fundstrat researcher Thomas Lee had shared charts that showed Bitcoin was the best-performing asset class of 2020 so far – bringing in returns of 39 per cent.
This didn’t last long. By the end of July, the market data aggregator Messari declared that Ethereum was now the rightful owner of this coveted title. It analysed 178 assets that exist on this blockchain and found that they have collectively delivered a year-to-date gain of 130 per cent on average.
Let’s break this down a little further. According to Messari, 124 of these assets are in positive territory – all the more impressive given March’s flash crash and the mayhem that’s been caused by the coronavirus. This includes stablecoins, which have the sole purpose of holding steady in value. Ten ETH-based tokens in particular have helped drive up these year-to-date gains, with each of these clocking up growth of 500 per cent in their price. There were a handful of weak performers among this asset class, too: while 15 have seen their price fall by less than 10 per cent, nine assets are down by more than 50 per cent.
Ethereum price prediction: factors to watch
We can say with absolute certainty that there are going to be significant developments in Ethereum price news in the autumn. Here are two particular things to keep an eye on.
First up, there’s a lot of concern is whether the DeFi sector is getting ready to burst. It’s been a crazy time for this industry – and for evidence at this, just look at the yearn.finance token. YFI was designed to be worthless, yet despite this, it’s surged from $800 to $13,000 in the space of four weeks… meaning it’s worth even more than Bitcoin. There’s a fear that inexperienced crypto users are wading into DeFi without fully understanding how it works. If the bottom falls out of this market, it’ll likely take ETH prices with it.
And there’s another threat that must be taken into account with the Ethereum price forecast: the disappointing progress being made in launching the second iteration of the blockchain’s mainnet. ETH 2.0 is desperately needed because the network’s existing infrastructure simply can’t keep up with levels of demand. Eight months have now passed since the Beacon Chain, otherwise known as Phase 0, was meant to launch. Even Ethereum advocates are warning that any further delays could cause DeFi protocols and users to consider other blockchain platforms.
A powerful illustration of the challenges associated with building ETH 2.0 came when the Medalla testnet, which is putting the new blockchain’s technology through its paces, suffered an outage that lasted for several days. While some of the developers insisted that this wasn’t something to be alarmed about – after all, testnets are meant to detect these vulnerabilities – others say this serves as proof that the network simply isn’t robust enough yet… meaning further significant delays are nothing short of inevitable.
All of this means that the ETH price forecast is something of an unknown quantity right now. The stakes are incredibly high, and it could be said that Ethereum developers are in something of a lose-lose situation. Postponing the launch once again would affect confidence in the blockchain, potentially irrevocably, and cause ETH prices to fall. But on the other hand, attempting to launch the revamped network in a rush could prove calamitous if the technology fails.
The debut of the ETH 2.0 blockchain is a big deal because of how it will begin a formal shift from Proof-of-Work to Proof-of-Stake – making mining a thing of the past. Although PoS is a fairly common consensus mechanism, it’s never really been done on this scale before, and that’s why getting it right is crucial. Millions of dollars are at stake.
In a report that was released to coincide with the fifth anniversary of Ethereum, CoinDesk’s Christine Kim wrote:
“The successful launch and development of Ethereum 2.0 through its initial two phases could greatly boost Ethereum’s value proposition in the eyes of investors. The launch of Ethereum 2.0 would be concrete evidence of a working alternative system of transaction validation that is more energy efficient.”
But striking a note of caution, she then added: “ETH value could also dwindle if the opposite were true and Phase 0/1 fails to deliver concrete evidence of a working PoS blockchain network.”
Where will Ethereum be at the end of the year?
Data from Skew can help give us the best impression of what could happen in the coming few months.
The aggregator has been scouring the ETH options market to see what lies ahead, looking at options that are set to mature on 20 December. It suggests that there’s just a 25 per cent chance of ETH exceeding $520 – an upside of about 28.7 per cent from current levels. Overall, the data suggests that there’s only a 40 per cent chance of Ether remaining above $400, its price point at the time of writing.
FURTHER READING: What is Ether? Your simple guide to the cryptocurrency
FURTHER READING: How to trade Ethereum: the ultimate guide