Ethereum’s Ether Headed to $5K as Activity, Institutional Demand Grows

Investor demand, onchain metrics and network activity are setting up ether ETH$4,041.86 to reach a $5,000 level for the first time, CryptoQuant analysts said in a report.

Ether spot ETFs posted a 13-day inflow streak on Wednesday to reach nearly $2 billion in cumulative net inflows. The funds attracted their first billion from July to early December, but SoSoValue data shows that they needed only five trading days to capture the next billion.

Total daily transactions hovered around the 6.5 million to 7.5 million level in the past few months, compared to about 5 million through 2023, indicative of higher network activity.

Meanwhile, the total supply of ETH has reached its highest level since April 2023, but the amount of ETH burned via fees has been growing since September. The total supply of ETH has reached 120 million, marking the highest level since April 2023.

Burns refers to permanently removing tokens from circulating supply by sending them to a wallet that no one controls. As the network sees higher activity and demand, the burn rate increases, limiting the growth of ETH supply and creating deflationary pressure.

Higher network activity on Ethereum signifies increased usage and demand for the network's capabilities, reflecting the growing adoption of decentralized applications. Moreover, it leads to greater ETH burned via transaction fees, which can create deflationary pressure on the total ETH supply, as the burn rate can outpace issuance during periods of high activity.

These factors cumulatively set up ETH to retake its all-time highs from 2021 and beyond.

“ETH could be heading above $5k if current demand and supply dynamics continue,” CryptoQuant said. “According to ETH’s realized price—the average price at which holders purchased their ETH—the current upper limit for ETH’s price stands around $5.2k.”

“This upper limit marked the top for ETH in the 2021 bull run. However, as new market participants buy ETH at higher prices, this upper price band continues to rise,” they added.

The recent surge in Ethereum's price has significantly increased the total value of assets locked within its ecosystem, reaching $77 billion on Thursday, the highest level since January 2022.

The lion's share of these assets is managed by just three key applications: Lido, which dominates with over $38 billion in staked ether, making it the largest liquid staking protocol; Aave, with $19 billion spread across various assets, functioning as a lending platform; and EigenLayer, a restaking platform, holding $18 billion.

The Ethereum network has witnessed a notable uptick in several key metrics in November. There's been an increase in revenue, transaction fees, new wallet creations, and on-chain volume, all indicating heightened activity when compared to the quieter months from May to September, as a CoinDesk analysis previously noted.

Ether largely underperformed bitcoin and other major tokens since 2022 but saw a return in bullish sentiment after Donald Trump won the U.S. presidential elections in November, rekindling hopes for a DeFi bull run among investors.

Trump's campaign has signaled a potential softening of regulatory pressures on cryptocurrencies, which could ease operations for DeFi platforms within the country. This anticipation has been a catalyst for increased demand for ETH and has propelled the growth of major DeFi tokens since early November.