- In the last week, Ethereum’s (ETH) price has reached a new yearly high after rising to $341.
- The rise is motivated by the hype for the launch of Ethereum 2.0, the growth in the DeFi sector and a boom in the derivatives market.
The bullish sentiment in the crypto market has been accompanied by highly positive returns. At the time of writing, Ethereum is trading at $342 with gains of 6.86% in the last 24 hours. In the weekly and monthly charts, ETH’s performance is even better with gains of 23.63% and 50.56% respectively.
What’s behind the current Ethereum (ETH) rally?
Three main reasons can be found why Ethereum (ETH) is showing a small rally. Firstly, the expectation for the launch of the Ethereum 2.0. During the first half of the year, users and investors were waiting for an official date to be announced for the deployment of the Beacon Chain, Ethereum’s proof-of-stake blockchain.
However, the project experienced some delays. Specifically, the complexity of Ethereum 2.0 and its requirements have demanded more time than the developers of the Ethereum Core initially thought. In the first months of the year, Vitalik Buterin and the developers of Ethereum Core stated that Ethereum 2.0 was “on track” for deployment in July.
The launch of the Ethereum 2.0 causes expectation due to the scalability improvements it will bring to the network. The Ethereum blockchain has experienced rate increases due to the growing on-chain activity, besides an increasing congestion. Although measures have been implemented to mitigate the problem, such as increasing the size of the blocks to 12.5 million, Gas prices are still high.
Although an official date is still expected to be announced, Buterin and some Ethereum Core developers have shown a strong position about launching Eth 2.0 during 2020. In that sense, fork coordinator Afri Schoedon announced the launch of the Medal testnet for August this year. This should be the last testnet before the launch of the mainnet. The announcement seems to have had a positive impact on Ethereum’s performance.
Growth in the DeFi Sector and the Ethereum derivatives market
On the other hand, congestion in the Ethereum network has not been a free phenomenon. The DeFi sector at Ethereum has experienced significant growth in recent months. After experiencing a crash during the crypto market collapse on “Black Thursday”, the DeFi sector has surpassed all previous records. Data from the DeFi Pulse platform shows that the Total Value Locked (TVL) in the Ethereum’s DeFi sector is at an all-time high of $3.97 billion.
As can be seen in the graph above, TVL has grown by about $3 billion since the beginning of June. Investors have been attracted to the DeFi sector by the high returns offered by some protocols of the platform. Through a method called “yield farming”, investors have been able to benefit of the returns offered by the various protocols to make a profit.
The launch of the governance tokens for Compound (COMP), yearn.finance (YFI), Synthetix and other platforms have been important catalysts. Some of these tokens have shown gains of 2,000% in less than 24 hours and 11,000% in less than a week. Finding the new star of the DeFi sector has become a central activity for investors. However, Vitalik Buterin has warned that this model is not sustainable.
At the same time, the Ethereum derivatives market has also experienced a boom. Deribit reported a new record in option volume and open interest. In just 24 hours, option volume stood at $49 million and open interest at $241 million with a 93% market share.
We have a new record high for ETH Options volume and open interest!🚀
With a peak 24hr volume of $49 million, the Deribit ETH options OI sits at $241 million (and currently 93% of the global Ethereum market share)!
We can't wait to see how this evolves! pic.twitter.com/F6vq08TDt6
— Deribit (@DeribitExchange) July 24, 2020