- Ethereum’s DeFi sector growth will be a catalyst for its price during “alt-season”.
- Investors diversify their portfolio while ETH outperforms Bitcoin (BTC).
Scratching its all-time high price, Ethereum (ETH) continues its rally with a momentum followed by the so-called “altcoins”. In the possible start of a winning season for the altcoins, ETH is shaping up as one of the biggest winners.
ETH is trading at $1,344 with gains of 131% in the last 30 days and 66% in the last week. Although Bitcoin (BTC) has started the crypto market rally, Ethereum has outperformed it due to 3 main factors.
Reasons for the Ethereum rally
First, the Ethereum network has had a year of achievements in terms of development. The launch of the deposit contract for the deployment of the Beacon Chain of the Ethereum 2.0, marked a milestone for the cryptocurrency that has begun its transition towards a Proof-of-Stake consensus.
Investors have been quick to “lock” funds to the contract to receive staking rewards. At the time of publication, 2.5 million ETHs have been allocated to the deposit contract, valued at $3 billion. The network’s 56,434 active validators currently receive a reward rate of 11.55%.
🤑 Reward rate: 11.55%
👨🌾 Participation rate: 99.05%
💻 Active validators: 56,434
⏰ Wait time: 18 days, 12 hours
💻 Validators: 16,640
📉 Rewards impact: -0.69%
—Projected Annual Returns—
Ξ 3.7 ($4,793.02)
— Eth2 Rewards Bot (@Eth2Bot) January 10, 2021
However, Eth2 is just one of the driving factors. The growth of the DeFi sector since the beginning of 2021 is another one. Within the first 10 days of the year, the DeFi ecosystem has reached historic all-time highs and currently, the total value locked (TVL) of DeFi protocols stands at $23.38 billion, with $8 billion allocated in a single week.
Jon Squires of Currency.com is optimistic in Ethereum’s DeFi community continuing to grow in popularity. The protocols offer investors a variety of attractive products to earn profits by lending, offering liquidity, and other financial services. In addition, Squires identifies retail investor participation as a key component. About what’s driven Ethereum’s rally, Squires told CNF:
One word: DeFi (…) These applications have exploded in popularity and their market caps shot up in 2020. So people are seeing value in the Ethereum project and buying up its native cryptocurrency, Ether. That’s why the currency is approaching its ATH levels.
Squires believes there is a possibility that the “alt-season” is just in its beginning stages. This is reflected in the profits that cryptocurrencies such as Cardano, Litecoin, Bitcoin Cash, and others present. Investors have begun to diversify their portfolios and allocate resources to cryptocurrencies other than Bitcoin (BTC). Squires believes this will increase the buying pressure in the market:
(Investors) put some of their investment in other assets, too. And as more retail investors get involved, the price goes up.
Ether suffers a supply shock
Another important factor could be the shrinking liquid supply of ETH on the market. The flow of ETH received by the exchanges has decreased to its lowest levels in the last 6 months. The DeFi sector and the deposit contract seem to be absorbing most of these funds. Consequently, a supply shock has not just hit Bitcoin, but also Ethereum.
Most of the trade in Bitcoin and Ethereum seems to be occurring on exchanges like Coinbase via “over the counter” (OTC) deals. In that sense, the flow of ETH and BTC entering Coinbase has become a crucial indicator to measure the market trend, as Squires concluded:
Exchanges such as Coinbase are catering to retail investors like never before.