KEY POINTS

  • Exchange outflow of Ethereum has increased
  • Traders might be switching to decentralized exchanges to take advantage of yield farming opportunities
  • A recent report said Ethereum is the best risk/reward investment in crypto

As Ethereum at $1,300 continues to get sustained, traders are expecting a likely visit to $2,000 in the future, a possible new all-time high, based on the following reasons.

Despite Ethereum dropping back to $1,040 on Jan. 22 amid decreasing cryptocurrency prices on that day, data from cryptocurrency exchanges suggests there is an increasing outflow of Ether across trading platforms. On Jan. 23, exchanges had the lowest number of Ether reserves ever since Nov. 2018. Some observers cited that the outflow may be just an internal transfer being done by an exchange, specifically Bitfinex, Cointelegraph reported

Still, it’s also likely that the transfer is being facilitated from cryptocurrency exchanges to decentralized exchanges like Uniswap and Sushiswap, as evidenced by the increase in total value locked across the entire decentralized finance industry, now amounting to $25.47 billion according to DeFi Pulse. Traders might be taking advantage of lucrative “yield farming” opportunities in DeFi that can’t be found in more traditional and centralized exchanges. 

As DeFi continues to grow and usage of automated market makers like Uniswap continues to increase, so do transaction fees (called gas fees). Because transactions in Ethereum are processed in blocks (like in Bitcoin), participants that pay higher fees will get confirmed first, causing a spike in fees and eventually, the price of the cryptocurrency. This happens because more and more participants vie to have their transactions confirmed first.

The increase in outflow on exchanges and toward decentralized exchanges also means demand for the decreasing supply of Ethereum on exchanges will cause its price to increase. According to Coinalyze.net, Ethereum trading has averaged $6.1 billion in daily volume last week, suggesting that many users continue to demand Ethereum, which the majority of them would likely take out from the exchanges. 

In a recent report, Fundstrat Global Advisors said they view Ethereum as the best risk/reward investment play in crypto, citing the growth in fees and the budding decentralized finance industry. The report also warns of risks, including a potential bear market and delays in the blockchain’s transition to Ethereum 2.0

ethereum-crypto-bitcoin-ripple-digital-currency-blockchain-getty_large Cryptocurrency Photo: Getty