Is Ethereum expected to break through $5,000? Explain the driving factors of the "Christmas market"

Author: Sze Lam; Source: Cryptonews

As Ethereum (ETH) prices consolidate above $3,900, traders are eyeing a possible surge before the end of the year, a phenomenon known as the "Christmas rally."

From a technical perspective, Ethereum is currently performing well, with prices above all major moving averages and maintaining a clear uptrend.

However, resistance formed by highs above around $4,000 in early 2024 is still limiting further breakthroughs in Ethereum prices.

However, for Ethereum investors, "Christmas" may come early.

Although Polymarket's betting odds show that the probability of Ethereum prices breaking through the all-time high of $5,000 by the end of the year is only 14%, this may underestimate the potential for a strong breakthrough. Here are the reasons:

Reasons why Ethereum prices are about to soar to $5,000

Reason 1: Market atmosphere

Describing the current crypto market as "good atmosphere" may be an understatement. Especially in the context of the new US government, which will take office in March next year, showing strong support for the crypto industry.

Trump promised this week to make major contributions to the crypto industry, and his nominees for Treasury Secretary and Chairman of the Securities and Exchange Commission (SEC) are both staunch crypto supporters. In addition, his family has recently been found to have increased their holdings of crypto assets such as ETH, AAVE and LINK. These signs have injected strong bullish confidence into the market.

It is no exaggeration to say that we are standing on the threshold of a new era in the crypto market, with the decisive positive turn in US policy marking the arrival of the "golden age".

This trend is an important reason why buying pressure may remain high before the end of the year, which is positive for Ethereum prices.

Reason 2: Market Leadership and ETF Inflows

The prospect of a national Bitcoin reserve in the United States suggests that Bitcoin (BTC) will be a huge winner under the new administration.

However, altcoins, such as Ethereum, which have been under pressure in recent years due to regulatory uncertainty, may see a more significant rebound.

Ethereum is expected to be one of the strongest performing altcoins. According to DeFi Llama data, even though it has been surpassed by Solana in speculative trading activity (thanks to its lower transaction fees), Ethereum still leads the DeFi total locked volume (TVL) market share with a 56% market share, continuing to dominate the decentralized finance field.

For new crypto investors who want to expand their investment scope beyond Bitcoin, Ethereum is likely the most obvious choice.

This is particularly significant because Ethereum is one of the only mainstream crypto assets in the United States to launch a spot ETF.

According to data provided by The Block, the inflow of funds to Ethereum ETFs has continued to rise since Trump's victory, further consolidating Ethereum's market advantage.

Ethereum prices still have room to rise further before the end of the year as there are no signs that the current positive trend will slow down.

Reason 3: On-chain activity is heating up

Another reason to be bullish on Ethereum prices is that activity on its blockchain is heating up rapidly.

According to Glassnode's Ethereum on-chain core data dashboard, key indicators such as the number of active addresses, the number of transactions, and the total transfer volume are all on an upward trend and close to yearly highs. This not only strengthens Ethereum's adoption narrative, but also supports its price.

In addition, this also further establishes Ethereum's characteristics as a deflationary asset - Ethereum's burning mechanism destroys part of the transaction fee (gas fee), so the more active the activity, the more ETH is destroyed, which in turn reduces the circulating supply and has a positive impact on the price.

How high can Ethereum go?

With Ethereum prices close to all-time highs, investors may be worried that the best stage of this round of gains has passed. But such fears may be misplaced.

Similar to Bitcoin, Ethereum prices have historically moved in cycles: aggressive price discovery phases are often followed by sharp pullbacks and prolonged consolidation.

But for bulls, a new price discovery phase may already be imminent. Bitcoin entered a new price discovery phase last month, and historical data shows that Bitcoin almost always enters this phase within eight months after the halving.

Ethereum tends to lag Bitcoin by up to two months. This means that Ethereum could see a strong breakout and a new all-time high in January 2024.

On-chain data also supports the argument that the peak has not yet been reached - Ethereum's "realized market value" (the total market value calculated by the average price of each coin when it last moved) just hit a new record of nearly $248 billion. According to Glassnode data, Ethereum's market value to realized market value ratio is currently around 1.5, far lower than the levels of more than 3 at previous market peaks.

This shows that Ethereum prices still have a lot of room to rise, and the current market cycle may just be beginning.

At the same time, although the profitability of the Ethereum market is high, it is still lower than the levels at previous price peaks.

According to Glassnode data, Ethereum's net unrealized profit/loss (NUPL) has recently been just above 0.5, while in previous market peaks, this indicator usually exceeds 0.75.

This shows that the current market still has the potential to rise further and has not yet reached the historical overheated state.

As to the question of "How high can Ethereum go?", no one can give a definite answer. But the potential is still very large.

In the last cycle, the price of Ethereum rose to more than 4 times its previous all-time high. If this kind of increase happens again, the price of Ethereum may approach the $20,000 level.

While this goal sounds ambitious, considering Ethereum's historical performance and fundamental support, this possibility is not out of reach.