Among the most-watched cryptocurrencies in the market, Ethereum's (ETH -0.30%) rise and fall over any given time period can influence the whole market. It's the second-largest digital asset by market capitalization, so its price swings over a given time frame have an outsized impact on the market overall.
For this reason, Ethereum's increase over this past weekend has stoked surging interest in the crypto sector. Ether has surged 5% since 4 p.m. ET on Friday (as of 12:30 p.m. ET today), holding steady above the key psychological level of $2,000 per token.
Geopolitical concerns, which are driving uncertainty in the markets, in combination with a falling U.S. dollar have some investors looking to alternative assets such as crypto to safeguard their wealth. Unsurprisingly, Ethereum remains a top option for investors looking to combat currency-related risks from a ballooning U.S. budget deficit.
Additionally, recent reports indicate that Ethereum's circulating supply is at record lows. The circulating supply of a given token is the percentage of overall tokens available that actually circulate in the ecosystem. This could indicate that investors are viewing Ethereum more as an asset to hold in cold storage (offline) than a token to be traded, highlighting Ethereum's potential as a store of value.
What does all this mean?
Investors have a myriad of concerns to contend with in this market. Heightened geopolitical risks as a result of the recent Israel-Palestine conflict, in addition to the ongoing Russia-Ukraine war, have stoked more defensive positioning from many institutional investors. Accordingly, for portfolio managers looking to spread out their alternative asset holdings across various asset classes such as crypto, Ethereum is going to hold some allure in this respect.
It's also worth thinking about Ethereum and other megacap cryptocurrencies as a perceived store of value. We haven't really seen how Ethereum has held up during a market crash, as it wasn't invented until after the global financial crisis (and most investors won't call the pandemic a true long-lived recession). With the actual circulating supply of Ethereum near all-time lows, any sort of material demand for these tokens could reasonably spark a further run-up in price.
Where to go from here
Of course, when an asset like Ethereum (worth nearly $250 billion at the time of this writing) is less liquid than it's been historically, this low liquidity environment can also work in reverse. If we get some sort of bear market dynamic building, it's possible we could see Ethereum give up its recent gains as it has during previous cycles in 2022.
That said, the strength in crypto markets this year has been notable. As with other risk assets, investors appear to be looking through whatever pain could be on the horizon. And given the added value Ethereum holds as a perceived store of value, it's very possible this strong momentum can continue into 2024.
