Worldwide – In May 2021, Ethereum (ETH) reached a record US$4,350 before falling to under US$2,000, however, recently has been trading above US$4,000, closing on October 29, 2021, above US$4,400.
Ethereum’s 2.0 upgrade, as well as the DeFi and NFT boom, are the major factors behind this bullish sentiment.
What’s Driving the Ethereum Bull Run?
1. Ethereum 2.0 (ETH2) is on its way
Ethereum is migrating to a proof-of-stake (PoS) consensus algorithm from its earlier proof-of-work (PoW) model. In this Ethereum 2.0 upgrade, miners are replaced by validators who stake ETH tokens to process transactions on the Ethereum network and provide security.
The upgrade is set to eliminate the network congestion on Ethereum by distributing the traffic into shards, smaller parallel chains. Such distribution of load will result in faster transactions and lower gas fees.
Ethereum took a major step towards their ETH2 upgrade by scheduling their Altair upgrade for October 27, 2021.
2. DeFi Space is Skyrocketing
Ethereum smart contracts gave birth to decentralized finance (DeFi), financial applications built on the blockchain. Be it lending, borrowing, derivatives, payments, or asset management, Ethereum is home to all kinds of DeFi applications.
DeFi space has shown a skyrocketing increase since its launch. Currently, the total value locked (TVL) in the DeFi space is over $95 billion.
As most DeFi applications are built on Ethereum, ETH’s demand increases, and so does its value as it is the primary token of the Ethereum network.
Following the footsteps of Ethereum, other emerging blockchain networks like Solana and Binance Smart Chain have their native blockchains supporting lending and trading applications. Nonetheless, Ethereum still dominates the DeFi market, with over two-thirds of the total DeFi value being traded on the Ethereum blockchain.
3. NFTs Craze Is Helping Ethereum
With ERC-721 token standards, Ethereum created another blockchain asset, non-fungible tokens (NFTs). NFTs are blockchain tokens that represent a unique value: digital art, audio, video, etc.
NFTs that first originated on the Ethereum blockchain are now trending among investors, traders, celebrities, and digital collectors.
In the third quarter of 2021, NFTs total trading volume surged by over 704% from the previous quarter hitting $10.67 billion in trading volume. This indicates the popularity of the NFT market.
4. Inflation Rate Has Gone Down
Ethereum activated its London hard fork in August 2021. With this upgrade, a portion of the transaction fees that would otherwise go to miners will be destroyed, reducing the ETH supply. This implies with every new Ethereum block, some ETH units will be removed from circulation.
Burning ETH tokens will eventually slow the inflation rate causing an increase in ETH’s price.
Ethereum, the second-largest blockchain network by market cap, is the blockchain of choice for building decentralized applications (from finance to gaming) and launching NFTs. In addition, web 3.0 is being built on the Ethereum blockchain. All such real-world use cases are driving Ethereum’s bull run. It would be unfair to label the ETH rally as another volatile swing as Ethereum’s uptrend is backed by its increasing adoption among several domains.