Ether (CRYPTO:ETH) has spent much of this year in a pronounced downtrend. Starting the year at US$3,675, it has fallen as low as US$2,425. The decline in ETH prices this year has been more severe than that in other cryptocurrencies. Top to bottom, ETH fell 36% this year. Bitcoin (CRYPTO:BTC) only fell about 22% from top to bottom in the same period. So, ETH has been doing worse than Bitcoin this year.
In recent articles I’ve covered some possible reasons for ETH’s under-performance. I offered the decline in popularity of NFTs as a possible reason for ETH lagging behind BTC this year. NFTs are crypto tokens that are bought and sold in ETH. They were extremely popular last year, but began to fade this year. That may have contributed to the sell-off in ETH. Ordinary volatility and a broad decline in the cryptocurrency market certainly played a role, but the NFT bubble bursting helps to explain why ETH got hit harder than BTC.
So, we have a plausible explanation for why ETH crashed so hard this year. The question now is:
Will Ether manage to recover from the damage it took?
ETH, like Bitcoin, has a long history of recovering from its dips. Since it was created, ETH has been rising long term. Today, we’re starting to see some encouraging signs that it may be ready to recover once more.
Ether rises
At the time of this writing (Wednesday), Ether was in the midst of a significant 24-hour rally. For the day, it was up about 5.4%. It wasn’t a bad little jump, all things considered. Bitcoin was making headlines for its rally on the same day, and ETH’s rally was significantly bigger in percentage terms. So ETH holders got a little richer on Wednesday. The question is, can ETH retake its all-time highs?
Can it recover to all-time highs?
It’s certainly possible for ETH to get back to all-time highs if investors have enough faith in it. The developer community is working hard to ensure their confidence is maintained. This year, the Ethereum foundation is working on a series of upgrades that will improve the Ethereum blockchain. The upgrades aim to take Ethereum up to 100,000 transactions per second and reduce network congestion. These upgrades should generate some excitement if they are fruitful. However, there are two major headwinds that ETH has to beat in order for it to retake its all time highs:
- The decline in popularity of NFTs. NFTs are digital tokens bought and sold with Ether. They were extremely popular last year. However, they are declining in popularity this year. If you look up “NFT” in Google Trends, you will see that search interest in the topic is waning. If this trend continues for the remainder of the year, then Ether will likely underperform relative to Bitcoin. Many people acquired Ether to buy and sell NFTs last year. If people aren’t interested in NFTs anymore then they no longer have that reason to hold ETH.
- The plethora of competitor cryptocurrencies out there. The number of cryptocurrencies is expanding constantly. There is no limit to how many cryptocurrencies can exist. Seemingly every day, people are creating new tokens that compete with ETH in various ways. Solana, for example, currently offers more transactions per second than Ether does. If any of these tokens becomes more popular than Ether, then ETH could see continued weakness.
The above are two serious headwinds for ETH. On the other hand, this token has stood the test of time, rising more frequently than it has fallen over the years. It has earned its position as the world’s second-most popular cryptocurrency.
