Crypto craze continues: ETH/USD at all-time highs as DeFi dominates

Unlike the “all fluff, no substance” ICO boom that propelled ETH/USD to record highs in 2017, the current rally is being driven by growing adoption of the network itself

Crypto 8

For an asset class that’s only a little more than a decade old, cryptoassets have already gone through a several full market cycles, allowing astute traders to draw conclusions about how the market may perform moving forward.

For instance, Bitcoin (the closest thing to a “blue chip” asset in the space) tends to outperform through crypto bear markets and has historically been the first to rally early in bull market cycles. We saw this exact dynamic play out through the 2018 bear market, with Bitcoin rallying strongly through H1 2019 and again starting in Q4 2020.

At a certain point, Bitcoin has historically “passed the torch” to major altcoins like Ethereum and Litecoin. The price action since the start of 2021 seems to reflect this shift to a middle-aged bull market in the broader cryptoasset ecosystem. Since New Year’s Day, Ethereum has more than doubled from $730 to above $1600, whereas Bitcoin has gained “only” 29% as of writing.

What’s driving ETH/USD?

Unlike the “all fluff, no substance” ICO boom that propelled ETH/USD to record highs in Q4 2017, the current rally in Ethereum is being driven by growing adoption of decentralized applications (dApps) built on the platform. In particular, decentralized finance (DeFi) applications that allow individuals to conduct financial transactions without traditional finance intermediaries are seeing rapid adoption. According to DeFiPulse, the US dollar value locked in DeFi applications sits at $35B, roughly triple what it was at the start of December. In other words, ETH/USD is rising because the entire Ethereum network is more useful than it’s ever been before.

ETH/USD technical analysis

Not surprisingly, the tripling in the amount invested in DeFi since the start of December has been almost perfectly reflected in a tripling in the price of Ethereum over that same period. As we go to press, ETH/USD is testing the 127% Fibonacci extension of the 2018 collapse near $1800. At the same time, the daily RSI indicator is showing a bearish divergence, signaling that buying pressure may be waning as prices approach resistance:

Source: TradingView, GAIN Capital

If price stalls out near $1800, we could see a short-term pullback toward previous-resistance-turned-support and the rising 21-day EMA in the mid-$1400s.

That said, with fundamental adoption growing rapidly, traders are likely to buy up any near-term dips in ETH/USD, so traders shouldn’t be surprised if the price of this exciting new asset reaches $2000 or higher in the coming weeks.


More from Cryptocurrencies

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.