Don't look now, but Ethereum (ETH 0.53%) is heating up again. The world's second-most valuable cryptocurrency broke above $3,000 on Tuesday, something it hasn't done in nearly three weeks. Ethereum is still down nearly 40% from its mid-November peak, but momentum is on its side again.
Two months ago I asked if Ethereum could break through the $5,000 ceiling. The digital currency hit an all-time high just below $4,900 late last year, and it was a natural new milestone to conquer. It didn't happen, so it's probably a good time to reset expectations with a more realistic round target. Can Ethereum reach $4,000 this year? It may not seem like a very ambitious goal, but it would represent a better than 30% gain from current levels. Let's size up Ethereum's chances of hitting the $4,000 mark in 2022.
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It's a gas
Long before car drivers started complaining about the pain at the pump, Ethereum traders had valid concerns about the high gas fees to move the crypto around. Ethereum raised the bar when it comes to blockchain technology, pioneering smart contracts. It continues to be a leader in the realm of smart contracts that power non-fungible token (NFT) marketplaces, financial services, and gaming apps. It currently accounts for 55% of total value locked (TVL), essentially the assets currently in use across all decentralized finance apps.
Ethereum's share of the market has contracted over the past year as more efficient protocols have become available, but there is good news in terms of transaction costs. Crypto market tracker Arcane Research reported earlier this month that transaction fees on an Ethereum token swap were at a six-month low.
The popular crypto has a long way to go to close the gap with more nimble options, but it appears to finally be on track with the migration of its platform to Ethereum 2.0. The process itself isn't likely to be completed until next year, but the next critical phase -- the one that will allow full staking -- could be just three months away.
CRYPTO: ETH
Key Data Points
Ethereum's shift to proof of stake is important on many different levels. It will help make Ethereum cheaper, easier, and more efficient to use. It will also help silence some of the environmentalist concerns that its current proof-of-work approach isn't eco-friendly. There will still be hurdles to clear in lowering costs and gas fees to make it a leader on those fronts, but it will make it easier for Ethereum to start gaining market share when it comes to TVL instead of just gradually losing its grip on the tug-of-war rope.
Delays have been par for the course for the Ethereum migration, so it's understandable why traders are nervous. If the migration to Ethereum 2.0 continues to get bumped deeper into the calendar it's going to mean more market share -- and possibly mindshare -- going to other digital denominations. The whole crypto market has been vulnerable, particularly in light of different countries including the U.S. ramping up their efforts when it comes to regulation.
The good news is that brand awareness of crypto as an alternative asset class is gaining traction worldwide. Rising inflation and political instability may also be stirring interest in crypto as an alternative to official country currencies. Ethereum hitting $4,000 in the coming months is more than possible, even if bears will point out that the same volatility that makes the higher milestone feasible also makes $2,000 possible as the next big round-number milestone.
It's easier to be optimistic, especially with a clear roadmap for Ethereum to get better as a tool in the growing universe of decentralized finance. Sentiment is turning bullish, and Ethereum at $4,000 later this year shouldn't take anyone by surprise.
