ETH Price Corrects Below $4K: Here’s Why Hodlers Are Still Bullish
ETH and other top cryptocurrencies have suffered heavy losses over the past few days following Elon Musk’s decision to suspend customers’ use of bitcoin to purchase Tesla automobiles.
Ether is trading just above $3,500 as of this article’s writing, marking a significant decline from its recent lifetime high of $4,362 seen earlier this month.
The crypto tracking website CoinMarketCap shows that the ETH price is down over 10% in the weekly chart. However, according to John Kramer, crypto investors have no reason to panic, a trader at GSR Capital.
Kramer explained that crypto enthusiasts have much reason to remain optimistic, as the market remains the bullish long term for the world’s second-largest cryptocurrency.
“There was a relentless spot bid in ETH for several weeks, but open interest has only recently started to track with the price increase, meaning there are less over-levered positions relative to what you’d expect after such a strong rally,” Kramer noted.
The record ETH rally to a new all-time high has come as an increasing number of developers continue to build DeFi apps on the Ethereum network. The growing popularity of non-fungible tokens (NFTs) has also played a significant role in increasing the demand for ETH, which is required to interact with smart contracts on Ethereum.
Analysts are Still Bullish on Ether
Despite the recent pullback that has seen ETH shed as much as $800 off its valuation in days, investors are still unwilling to offload their coins.
Mira Christanto, a researcher at Messari, recently tweeted that the sharp correction in the ETH market has come without an uptick in exchange inflows, suggesting that hodlers are still stubbornly bullish on the top altcoin.
Ivo Grigorov, the CEO of DeFi lending platform Crededi, reiterated that the current bull run is far from over, despite fears from some in the crypto community. He predicted that the ETH price would probably double from its current record high to hit $8,000K by the end of 2021.
Are Investors Hodling Due to High Gas Fees?
One of the drawbacks of the recent historically high ETH prices is mounting network congestion as more individuals send funds or utilize smart contracts.
As a result of the heavy network use, transaction fees on Ethereum have soared to new all-time highs. Statistics from on-chain analytics firm Coin Metrics show that May’s transaction fees are on track to surpass the current monthly record of $722M set this past February.
Meanwhile, Ethereum miners enjoy record revenues because users are currently forced to pay increasingly higher transaction fees to ensure their transaction gets through. In fact, network revenue is on course to surpass the total of Q1 ($1.7 billion) before the end of May.
The good news is gas fees are expected to drop soon with the implementation of the Ethereum Improvement Proposal 1559 (EIP 1559) under the London upgrade scheduled for July. The new pricing mechanism introduces a base fee to ETH gas fees and a “burn” feature that will significantly reduce the supply of Ether.
The imminent reduction in gas fees is likely motivating some Ether investors to Hodl as they anticipate the network to become more affordable. Crypto owners are also likely holding on to their stash in hopes that the reduced ETH supply brought on by EIP 1559 could push prices higher.
That said, the upcoming upgrade to ETH 2.0 is perhaps the main reason why most investors remain bullish on Ether. The shift to a proof-of-stake network is expected to permanently fix the gas fees menace on Ethereum and spur more growth, giving investors massive benefits.