On February 24, its price fell 12% to $2,348, its lowest level since last July. Since then, more than $500 million worth of Ethereum has been withdrawn from cryptocurrency exchanges as traders hope to hold on to their cryptocurrency in anticipation of a bullish price move. According to data from Chainalysis, such an outflow would be considered an indicator of a bull market.
Assets held on exchanges increase if more market participants want to sell than buy and if buyers prefer to hold their assets on exchanges
Earlier in February, a report from Morgan Stanley bankers highlighted the risks that threaten the future of Ethereum, while also presenting opportunities for so-called “Ethereum killers”:
Ethereum is not decentralized enough: 100 addresses own 39 percent of the ether currency. It is too volatile. Software is more at risk than Bitcoin because it changes more frequently, is more complex, and is prone to failure. Ethereum is under heavy pressure from competitors like Binance, Solana and Cardano High transaction fees create scaling issues and jeopardize demand growth. Finally, because the project is strongly linked to decentralized financial activities, it is vulnerable to possible regulatory restrictions.
On the other hand, a market capitalization of $282 billion makes Ethereum a giant of blockchain technology. Binance is currently valued at five times less.
So what lies ahead for Ethereum in 2022 and beyond? Will blockchain continue to dominate the industry? Will the price of the cryptocurrency be able to return to its previous heights?
Transition from Ethereum to PoS in 2022
The launch of the Ethereum 2.0 blockchain will continue in 2022. In early August 2021, the London hard fork triggered the expansion of coins on the Ethereum blockchain, which is expected to support the value of ether (ETH) by reduce the supply of tokens.
On October 27, 2021, the Altair update was performed on the core network. The new Ethereum network, called Beacon Chain, is testing the transition to PoS, a transaction validation model for mining. The Ethereum core network will merge with the Beacon Chain in 2022, completing the transition to Ethereum 2.0.
The Arrow Glacier network upgrade took place on December 8, 2021, delaying the “complexity pump” (increased mining complexity) and moving the transition from PoW to PoS to June 2022. Proof of Work ( PoW) is the consensus algorithm used in the Bitcoin blockchain, which verifies transactions and mines blocks through complex calculations. The PoS algorithm verifies transactions using validators that place tokens on the network, requiring less computing power and electricity consumption.
“The miners, or clients of the Ethereum network, wanted to avoid a rollback while working on the next big update,” according to the Ethereum Cat Herders developer blog.
The complexity regulation was originally intended to ease the transition to PoS, but over time it has taken on the additional property of encouraging those who wish to continue working with Ethereum to upgrade their nodes. Therefore, staying in the old chain is not an option.
Growing institutional interest in Ethereum
In 2021, Ethereum attracted the interest of institutional investors due to the development of decentralized financial services (DeFi) and the appearance of non-fungible tokens (NFT).
According to CoinShares, Ethereum had $39.2 million in capital outflows in the first week of 2022.
Investment bank JP Morgan is among the institutions increasingly venturing into cryptocurrency territory. During the Crypto Economy Forum event, JP Morgan Bank handed out NFTs created on the Ethereum-based Polygon network, which were then published on the OpenSea NFT marketplace. More recently, Bank of America also issued its first NFT token in support of the international Sibos conference.
Smart contract markets will continue to grow strongly in 2022. Over the past year, the DeFi ($22 billion to $240 billion) and NFT ($250 million to $2.1 billion) sectors grew by an order of magnitude. The metauniverse market is expected to boom this year, potentially growing from $600 million to $5 billion. Despite high network congestion, the demand for ether will continue to grow, but much depends on the speed of the transition to PoS.
The base rate forecast scenario assumes that the move to the new protocol will be delayed again. In that case, Ethereum will rise in price to $7,000 by the end of the year. If Vitalik Buterin manages to successfully merge the two branches, the cryptocurrency is likely to reach $10,000.