3105btcM

A 2020 ETH walkthrough: Ethereum price sees $1000 for the first time in three years

Cryptocurrencies

Summary:  Ethereum traded at the highest price in 3 years closing the gap to its all-time high. With the first phase of a new upgrade launched and multiple other events in 2020, the cryptocurrency is ready for an exciting 2021 - however, it did not come without drawbacks.


The price of the second-biggest cryptocurrency based on market capitalization, Ethereum (ETH), traded above $1,000 today for the first time in three years. The smart-contract cryptocurrency hit $1,166 shortly before dipping to below $1,000 again. Currently, it is trading just slightly above $1,000.

Together with Bitcoin, Ethereum experienced solid gains in 2020. The cryptocurrency started the year at $129.96 according to TradingView, whereafter it closed the year at $735.77. Throughout the year, Ethereum experienced a year-low of $88.50 on the 13th of March.

Driven by Bitcoin and institutional inflow

The rally has been driven by multiple events. Most importantly, it is crucial not to underestimate the power Bitcoin has on Ethereum. Ethereum often follows Bitcoin’s price movements to some extent. The Bitcoin block reward halving back in May 2020 and the inflow from institutional investors into Bitcoin in the second half of 2020 made Bitcoin reach a new all-time high of approximately $34,750 on January 3rd 2021. Some of that momentum has influenced the price of Ethereum.

Furthermore, back in December the biggest crypto asset manager called Grayscale reported that they are seeing more investors allocating funds to Ethereum. Some of them, are even Ethereum-only investors – meaning they are not holding any Bitcoin. These investors are mainly high-net-worth individuals along with institutions.

Ethereum 2.0 has launched: Making ETH more scalable and secure – over time

In December Ethereum initiated the first phase of the highly anticipated multi-year plan to make Ethereum more scalable and more secure. Known under the term ETH 2.0, it will take Ethereum from validating transactions from mining to staking, which essentially lets holders of Ethereum validate transactions on the network instead of using massive computational resources. In return, validators are receiving staking rewards. The option to stake gives investors an additional incentive to hold ETH. The new supply will therefore not go to miners as with Bitcoin, but directly to the stakers. Currently, over 2,200,000 ETH are staked out of the total supply of 114,112,489 ETH. Secondly, the upgrade will allow ETH to better handle the growing amount of transactions to lower fees, making it more attractive for different use-cases.

High fees can kill the Ethereum momentum

The topic around lower fees has been a never-ending story over the past years as the ETH fees have skyrocketed with the cheapest ETH fee currently at above $2, due to the transaction limitations on the current Ethereum network. This has fueled the competition and made room for other smart-contract cryptocurrencies on the market, for example, PolkaDot, Cardano and Tezos. As Ethereum is currently only capable of handling around 14 transactions a second, the cryptocurrency can quickly lose its first-mover advantage as significantly more transactions per seconds are needed to essentially build a global super-computer.

Decentralized Finance is the new backbone of Ethereum

With the growth of Decentralized Finance on the Ethereum-network – in short; DeFi – being able to handle more transactions has become more important than ever. DeFi is decentralized financial tools mainly based on Ethereum. It lets, for example, users trade between tokens, taking out loans and issuing stablecoins backed on other tokens – all without a middleman. DeFi gained great momentum in 2020 from under $1B at the beginning of the year to over $17B of value locked in DeFi protocols. Currently, 99% of all Ethereum transactions are related to DeFi protocols. Though, with the growth of DeFi, hackers have found a new target with a total of $100M been stolen in 2020 alone, which is not contributing especially well to the trust in DeFi.

A new year: Looking into 2021

Ethereum had a great 2020 – both based on its price movements, technological improvement and on-chain activity. With the announcement from CME Group back in December that they will launch Ethereum futures trading in February 2021, 2021 will be an exciting year for ETH. CME Group launched Bitcoin futures back in December 2017. Just a couple of days ago, it became the biggest Bitcoin future across the globe measured on open contracts. This is mainly because of institutional interest. Therefore, a lot is expected of the Ethereum future as soon as it goes live. The ETH 2.0-upgrade is expected to take Ethereum to a new level regarding its technical capabilities. However, the upgrade also comes with uncertainties as nobody knows when ETH 2.0 will be fully implemented. It is currently planned to be launched in 2022, but technical issues can potentially postpone the upgrade and expose Ethereum stakers to risks if it does not turn out as expected. Furthermore, delays can make room for other more scalable cryptocurrencies. And in general the crypto space is vulnerable to hackers and to increasing regulation of crypto trading.

 

04_MAEB_1
Price of BTC, USD. Source: CoinMarketCap.com
04_MAEB_2
Price of ETH, USD. Source: CoinMarketCap.com

Quarterly Outlook

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992