Ethereum fundamental analysis: Will solid fundamentals power ETH beyond $4,000 once more

Ethereum transaction fee jumps in courtesy booming DeFi

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Crypto is today’s ‘Wild West.’ But to the financial experts, cryptocurrencies are just like any other financial asset. The right mix of fundamental and technical research can help an investor understand the risks involved in trading cryptocurrencies. The quest to uncover the hidden potential of a coin lies in in-depth research and extensive studies.

Ethereum fundamental analysis means understanding the entire ecosystem that powers the ETH phenomenon. Investors have to study Ethereum from every angle, from its detailed history to current price movements, technical aspects, and the people who drive the Ethereum. The goal is to derive a conclusion on whether Ethereum is worth buying.

Whether you are a day trader or a HODLr, Ethereum fundamental analysis is the first step into the world of Ethereum. So, let’s dive into the ETH ecosystem.


Ethereum price chart by TradingView

The current crypto market has once again rekindled the volatile nature of cryptocurrencies. Like in May 2018, the present bearish overtone in Ethereum price has sparked the interest towards fundamental analysis.

In four weeks, the price of Ethereum has come down from $4,380 to touch a low of $1,730. Caught by the whirlwind surprise, the traders are looking beyond the usual 4-hour and 12-hour charts. The ETH/USD pair has recouped some of the losses, but the bigger picture is still muddy.

Could a similar crash occur again? Of course, and that’s where Ethereum fundamental analysis comes to the rescue. A long-term understanding of Ethereum price from a fundamental viewpoint can certainly help a great deal.

In 2013, Ethereum didn’t start as a coin and wasn’t meant to hold any nominal value. Unlike other coins, ETH’s main foundation is laid upon the Ethereum blockchain that powers a host of digital crypto operations, smart contracts, in various economic spheres, including ‘Decentralized Finance.’ Today, Ethereum derives its value from being at the center of decentralized finance operations and powering digital transactions. The upgrade to ETH 2.0 is all set to bring staking to the ETH platform.

What makes Ether Valuable

Protocols that use Ethereum blockchain fuel their daily operations using ETH fees. Acting as collateral in DeFi protocols, Ether is the DeFacto DeFi asset. It is the backbone of ‘Yield Farming’ and staking operations on multiple platforms. Ether is also used for funding various processes and services on the Ethereum blockchain, thus solidifying its currency credentials. Ether powers the non-fungible tokens ecosystem.

Yaroslav Belkin, CEO of Belkin Marketing, believes that the Ethereum, especially DeFi, has the potential to bring about a significant change in traditional finance through efficient and progressive blockchain technologies.

Total Supply and Market Capitalization – Ether dominance on the rise

Source: EtherScan

In the crypto realm, the market capitalization metric carries enormous importance as it shows a coin’s dominance in the market. Ethereum is often called the second-best cryptocurrency globally after Bitcoin, and the same is reflected in the market cap and total supply figures.

Even after the recent downturn, Ether’s market capitalization stands at $281,000,248,287.00, which is a huge figure in the crypto market. The total supply of 116,322,012.28 Ether also represents solid fundamentals from a financial standpoint.

Ethereum Transactions Count – Steady on an annual basis

Ethereum Transactions Per Day – Source: YCharts

Ethereum transaction count is a great way to measure the network’s real-time activity. The chart shows that the Ethereum transaction count has gradually risen in the past year. The transaction activity peaked at 1.17 million on 12th May, powered by the massive positive sentiment in the crypto industry.

The downfall that began in mid-May resulted in a mild loss in transaction count. As of 15th June, the transaction count stands at 1.224 million and carries a downward bias. Ethereum fundamental analysis shows that the transaction volumes have also risen slightly to touch 5.62 million.

Ethereum Average Transaction Fee – Gas prices are under control

Ethereum transaction value – Source: YCharts

The average transaction fee carries high importance in the Ethereum ecosystem. The ETH fee in USD is charged on every transaction performed using Ether. It is known to rise sharply when the network experiences high traffic. Recently, Ethereum transaction fee reached abnormally high value during mid-May when it touched the $71.00 level making ETH transactions virtually unfeasible.

In 2017 and 2018, Ethereum transaction fees experienced a similarly sharp rise. Currently, ETH transaction fees stand at 4.39 USD, which is a nominal value and good for the healthy growth of the network.

Ethereum volume data – Source: IntoTheBlock

With rising mining costs, gas prices are set to rise. However, ETH should aim for a gradual rise, keeping in mind the network growth and usage statistics. A sharp rise always causes a knock-on effect on the network.

Average Time Between Transactions – Rising steadily

Ethereum Average Time Between Transactions – Source: EtherScan

The average time between transactions represents the average time interval between one block and the next. A higher average transaction time means the network is congested. Over the years, the high traffic in the ETH network has resulted in a rise in the average time between transactions. Such a development is not ideal if the network is to boost its efficiency.

The average time of 13 seconds is relatively low but still higher, considering ETH is a high-value transaction coin. Hopefully, the upcoming ETH 2.0 will take care of the ETH average time between transactions indicator by improving network efficiency.

Correlation with BTC – Moving at par with Bitcoin

ETH BTC Correlation – Source: IntoTheBlock

The rising correlation between Bitcoin and Ethereum has become more evident since January 2021. Both the cryptocurrencies are now displaying similar knee-jerk reactions to the market forces. Even though BTC is far more valuable, ETH is showing similar signs in terms of growth. The price action has become closely correlated in the last few months.

Correlation data doesn’t always help predict a coin’s price trajectory. Ethereum prices can move in parallel with Bitcoin in volatile times, but the same cannot be said during stable time periods. Ethereum’s price rose during the DeFi boom when BTC was moving slowly. So, the correlation data must be taken with a pinch of salt.

Ethereum shows decent performance in social media trends

Ethereum Social Media Trends – Source: IntoTheBlock

Social media indicator has become a crucial indicator in times of volatility. When prices rise and fall sharply, the social media hype helps traders and investors make critical trading decisions. Users on various social media channels and platforms give a clear picture of a coin’s popularity.

A viral post or important news can make quick headlines. The Crypto community reacts fast and social media is the perfect place to track the rapid developments related to a coin. Also, social media is an ideal way to connect with the ETH community.

Social media charts show the online interaction about ETH peaked in mid-May and has come down since. The fall can be attributed to the overall sluggish sentiment in the crypto market.

Ethereum fundamental analysis conclusion – ETH ready to fly again in 2021

Unlike technical analysis, the fundamental analysis shows how overall health of the coin. It helps traders and investors look at the larger picture and not just the hourly charts. A study of the various indicators, statistics, and news help determine the overall trajectory of the cryptocurrency.

Ethereum fundamental analysis reflects the sound fundamentals of the native blockchain. The state of DeFi and transaction fees shows that the blockchain is evolving in the right direction. The Ether is set to reclaim $4,000 and move to fresh new highs once the current stagnation is over.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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Gurpreet Thind

Gurpreet Thind is pursuing Masters in Electrical Engineering at University of Ottawa. His scholarly interests include IT, computer languages and cryptocurrencies. With a special interest in blockchain powered architectures, he seeks to explore the societal impact of digital currencies as finance of the future. He is passionate about learning new languages, cultures and social media.

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