Ethereum coin next to a bull in front of a chart

Ethereum rushes to all-time high: these are the rally culprits

Just a few days ago, Ethereum set a new record high. If the second largest cryptocurrency keeps up the pace, however, the mark could soon be razed to the ground.

When the Bitcoin rally shifts down a gear, it’s Ethereum time again. The two largest cryptocurrencies are currently taking turns to conquer one record after the other. Only a few days ago, Ethereum reached by Bitcoin Lifestyle a new all-time high, but at the current pace, this could soon be renewed.

Ethereum price (ETH) in the weekly chart

At the time of writing, Ethereum is trading at 1,419 US dollars, just 1.1 percentage points below its all-time high. On the day, the second-largest cryptocurrency is up 7.2 per cent for a weekly gain of 7.4 per cent.

The Ethereum price has almost doubled since the beginning of the year alone. The remarkable performance can be attributed to initially different dynamics, which, however, at second glance are mutually dependent and continuously boost the price.

First, the rally is the result of increasing Ether allocation by retail and institutional investors. As the chart below from Glassnode shows, the number of wallets holding 0.1 or more Ether, or 10,000 or more Ether, has risen consistently since November last year, with few setbacks.

Ethereum search behaviour on Google also testifies to increasing interest among retail investors. Although the trend has corrected somewhat downwards since the second half of January, it remains at a strong level compared to the previous year.

Meanwhile, the recently published year-end report of the crypto exchange Coinbase suggests that Ethereum is increasingly establishing itself as a popular asset class among large investors. According to the report, institutional investors are gradually recognising the value storage qualities of the second-largest cryptocurrency and are increasingly shifting assets into it. In addition, an understanding of the synergetic network effects has matured over the years, which ultimately leads to a far-sighted accumulation of Ether by wealthy investors.

Supply shortage

The rising demand among private and professional investors is meeting with an ever-decreasing supply. As recently as the beginning of August 2020, the supply held by exchanges amounted to just under 19 million Ether. Currently, exchange reserves have collapsed to around 15.4 million Ether – a decline of 19 percent in half a year.

In the same period, Ether Supply incorporated into smart contracts has increased by 50 per cent from 12.5 to 18.8 per cent. There is a close correlation between the two indicators – supply meltdown on the exchanges on the one hand and rising smart contract embedding on the other – which acts as a permanent price driver. In this context, smart-contract-based DeFi applications in particular are turning out to be constant buyers of large ether volumes. According to defipulse, 7.2 million Ether are already tied up in DeFi applications.

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