Now that Bitcoin (BTC -2.16%) has hit a new all-time-high, could Ethereum (ETH -0.16%) be next?
Currently, Ethereum is trading at just under $4,000, within striking distance of its all-time-high of $4,891.70. Given that Ethereum is already up about 70% for the year, it wouldn't seem to require much for Ethereum to rise another 25% before the end of 2024.
And indeed, there are two potentially major catalysts in place this year. If Ethereum is going to soar to an all-time-high of $5,000, it's likely that both of these are going to be needed. Let's take a closer look.
New tech upgrade
The first major catalyst is a brand-new tech upgrade (Dencun). It is the biggest change to the Ethereum blockchain since The Merge, which took place nearly 18 months ago. So understandably, analysts are getting excited about what this new upgrade might mean for Ethereum's growth prospects.
The Dencun upgrade has two major goals: to improve the scalability of the Ethereum blockchain (which can still suffer from congestion and slow throughput times), and to lower the costs of transactions within the Ethereum ecosystem. If Dencun can deliver on both, it would help to cement Ethereum's role as the preeminent smart contract platform in the world. Even better, Dencun is setting the stage for Ethereum's next upgrades, all of which have been carefully laid out by Ethereum co-founder Vitalik Buterin in the blockchain's latest annual roadmap.
So far so good, right? You have a tech upgrade promising major performance enhancements, and you also have a roadmap for future growth. But not so fast. A number of blockchain analysts are taking issue with the Dencun upgrade.
As they see it, Dencun is not a long-term fix because it relies too much on third parties (known as Layer 2 scaling solutions) to make all the performance enhancements work. In a worst-case scenario, reliance on these Layer 2 scaling solutions could lead to all kinds of interoperability issues, fragmentation within the Ethereum ecosystem, and a loss of cohesion among Ethereum developers.
Spot Ethereum ETFs
The second big catalyst is the potential launch of new spot Ethereum exchange-traded funds (ETFs) as early as May. Given all the enthusiasm and excitement around the spot Bitcoin ETFs, it's easy to see why a new spot ETF investment product could send Ethereum soaring.
As in the case of Bitcoin, it would become remarkably easy for any investor to buy Ethereum. If these investors decide to allocate even 1% of their portfolios to Ethereum, that could send the crypto soaring.
Image source: Getty Images.
The only problem, from my perspective, is that analysts seem to be vastly overstating how easy this process is going to be. As they see it, the Securities and Exchange Commission (SEC) has already bought into the idea of spot ETFs for cryptocurrencies, and thus, new approvals are going to be coming on a regular basis from here on out.
But what they fail to take into account is that the spot Bitcoin ETF process took years to achieve, and only after very specific milestones had been met. Even up until final approval in January, there were serious doubts about the SEC finally approving them.
And we're starting to see the same thing with the spot Ethereum ETFs now. The probability of an SEC approval taking place in May has recently been lowered from 70% to 30%, according to a top Bloomberg analyst.
That's because the SEC has maintained what can only be described as radio silence ever since the spot Ethereum ETF applications were filed. There has been no outreach to the investment firms trying to bring them to market, and no indication that regulators are now ready to sign off on other cryptocurrencies beyond Bitcoin.
Is the glass half-full or half-empty?
If you're an optimist and see the glass as half-full, the new Ethereum tech upgrade in 2024 is worthy of the same type of acclaim as The Merge was back in 2022. You probably also think that a fresh batch of spot Ethereum ETFs are on their way before the start of summer.
However, if you're a skeptic and see the glass as half-empty, the new Dencun upgrade is at best a temporary fix for problems that have been plaguing Ethereum for years: high transaction fees and slower transaction processing speeds compared to many other blockchains. Moreover, you're probably also thinking the SEC will take its time with the spot Ethereum ETF approvals, much as it did with the Bitcoin ETF approvals.
My concern right now is that the optimistic scenario has already been baked into the price of Ethereum. How else to explain the fact that Ethereum is up just as much as Bitcoin this year?
Thus, if either of these two catalysts fail to deliver as expected, we could see a pullback in the price of Ethereum. For that reason, I'm taking a wait-and-see approach with Ethereum right now.
