March 8, 2024 at 14:21 GMTModified date: March 8, 2024 at 14:21 GMT
March 8, 2024 at 14:21 GMT

Ethereum nearing $4000: A boon for DeFi and DEX growth

The surge is part of a broader bullish trend, with many analysts predicting a potential rise to $5000.

Ethereum nearing $4000: A boon for DeFi and DEX growth

The world’s second-largest cryptocurrency by market capitalisation is witnessing a significant rally, trading near the $4000 mark for the first time since December 2021.

This represents a 15% increase for Ethereum ($ETH) over the past week. The digital asset’s recent notable performance has sparked predictions of it reaching the $5000 threshold as well.

The momentum is underpinned by a series of positive market indicators and growing investor enthusiasm. This rally has also propelled the restaking protocol – EigenLayer – to become the second-largest DeFi protocol in terms of total value locked (TVL), as reported by DeFillama.

EigenLayer’s innovation lies in its ability to repurpose staked ether for additional security purposes. By allowing users to “restake” their Ether, the platform effectively leverages existing staked assets to bolster the security of multiple networks simultaneously.

The anticipation surrounding Ethereum’s next major network upgrade, Dencun, is also a key factor driving the price increase. Scheduled for 13 March, the upgrade aims to introduce proto-danksharding, which is expected to significantly reduce transaction costs and enhance scalability for layer-2 blockchains.

Additionally, the potential approval of a spot Ethereum ETF by the US Securities and Exchange Commission (SEC) is another catalyst that could further fuel Ethereum’s upward trajectory.

Betting big on ETH

The recent bullish trend in Ethereum has led to a notable rise in its futures open interest, which has reached a 27-month high of $12.2 billion, marking a 71% increase in the last month. 

This surge in open interest indicates that traders are either initiating new positions or maintaining existing ones, contributing to increased market liquidity.

However, the bullish sentiment comes with its own set of risks. CryptoQuant analysts have pointed out that while rising funding rates generally signal a bullish market sentiment, excessively high values can lead to market instability. 

Such conditions increase the likelihood of long liquidation cascades, which can cause sharp price corrections and heightened market volatility. This was evidenced on 5 March when Ethereum’s price dropped from $3800 to $3400, resulting in $135 million in long liquidations, as per Coinglass data.

Despite these challenges, Ethereum has shown remarkable resilience, maintaining a bullish trend while other cryptocurrencies have faced significant corrections. At the time of press, the altcoin was priced at $3,944, up by over 4% daily.

Steady performance amid market fluctuations

Despite the inherent volatility in the cryptocurrency market, Ethereum has demonstrated significant resilience and a steady performance. 

In the midst of fluctuating market conditions, where many digital assets have experienced substantial price corrections, Ethereum has maintained a bullish stance, avoiding the drastic drops that could undermine its market position.

The technical analysis of Ethereum’s price movement reveals a strong uptrend. This is evidenced by consistent higher highs and higher lows on the charts, a classic indicator of bullish momentum. 

Additionally, the alignment of moving averages further supports this positive outlook. In a bullish configuration, shorter-term moving averages are positioned above the longer-term ones, and Ethereum’s price has been trading comfortably above these levels, which now serve as dynamic support zones.

Resistance levels, which act as psychological barriers to price increases, are being tested and breached with increasing frequency. This suggests that there is substantial buying pressure in the market, as investors continue to show confidence in Ethereum’s long-term value. 

The successful breaching of these levels, particularly the significant $4,000 mark, could pave the way for further gains, with the next major psychological milestone being the $5,000 target.

Historically, Ethereum has followed Bitcoin’s lead, with price surges in Bitcoin often preceding similar movements in Ethereum. Given the recent correction phases in Bitcoin followed by price surges, Ethereum could be on the brink of another significant price increase.

DEXs gain momentum

The decentralised exchange (DEX) sector has experienced a significant increase in activity, coinciding with Bitcoin’s rally to new all-time highs. 

Over the past week, the total DEX volume reached $63.2 billion, marking a 70.96% increase. This surge reflects a growing interest in DeFi and a shift towards decentralised trading platforms, with DEXs now accounting for 38.45% of the total exchange market share.

Ethereum continues to play a pivotal role in the DeFi ecosystem, contributing $20.783 billion to the weekly DEX volume, an increase of 54.70% from the previous week. 

Additionally, emerging platforms such as Arbitrum and Solana have seen remarkable growth as well, with their weekly volumes increasing by 86.08% and 152%, respectively. 

Notably, Solana even surpassed Ethereum in total network volume for a brief period, driven by a surge in interest in Solana-based memecoins and DEXs.