Ethereum price:
How does it work & what affects ETH value

Knowing how the Ethereum price and value work and what shapes them helps investors make decisions in buying and selling. After the significant price increase in 2021, Ethereum has consolidated its place in cryptocurrencies. For the first time in history, people who are newly interested in cryptocurrencies have started to buy Ethereum more instead of Bitcoin.

Table of Contents

To understand the changes in Ethereum’s value before investing, it’s vital to know the characteristics and history of Ethereum, just as you would familiarize yourself with any other asset before investing.

Ethereum: Quick Introduction

Ethereum is a decentralized, open-source blockchain with smart contract functionality. Programmer Vitalik Buterin was the one who proposed Ethereum in 2013. Back then, the idea of the Ethereum network arose from dissatisfaction with Bitcoin’s limited vision of the use of blockchain technology.

Despite the general volatility of cryptocurrencies, many consider ether one of the most stable and flexible coins. That is because of a solid use case of the network. Ethereum consists of its application of the revolutionary blockchain technology to a software platform that enables the creation of different decentralized applications – such as smart contracts – to be built and run without third parties. In other words, Ethereum has ambitious plans in decentralizing not only the trade of currencies but also many different levels of business operations.
 
Ethereum has its native token called ether (ETH) that holds the Queen’s place next to bitcoin. Essentially, ether is a currency with which you can buy decentralized apps that run on Ethereum. It is also the currency that incentivizes miners to run the Ethereum protocol on their computers. This creates a similar reward system to Ethereum as Bitcoin has.
 
Ethereum Price History to EUR and USD

To help you understand the historical financial development of Ethereum, we have listed Ethereum’s lowest prices in the past years. What could be the lowest price for this year? Make your guess in the comment section below.

  • 2015 1 ETH = 0,42 USD = 0,38 EUR
  • 2016 1 ETH = 0,95 USD = 0,87 EUR
  • 2017 1 ETH = 7,92 USD = 7,21 EUR
  • 2018 1 ETH = 83,90 USD = 76,41 EUR
  • 2019 1 ETH = 102,93 USD = 90,55 EUR
  • 2020 1 ETH = 127,29 USD = 104, 58 EUR
  • Price of ether in 2021 1 ETH = 4213,85 USD = 3422.77 EUR (All time high)

Read next: Where and how to buy Ethereum

What affects the Ethereum price

The price of cryptocurrencies depends fundamentally on the supply and demand of the markets. Overall, there are a few significant factors that affect the sentiment of the ether market.

Domination of Bitcoin

Bitcoin has the most influence over the value of other cryptocurrencies. If the bitcoin price increases, the value of other cryptos tends to increase proportionally. This happens in reverse if the price of bitcoin decreases.

Besides the bitcoin price changes, what also affects the Ethereum value is which coin dominates the market. In short, for years, Bitcoin has been the number one cryptocurrency in terms of market capitalization and number of active wallet addresses. But in July 2021, Ethereum, for the first time, flipped (dominated) Bitcoin by the number of daily active addresses on its network. Should the trend continue, the Ethereum price could spike.

Ethereum is seen as a legacy coin

The cryptocurrency market offers a selection of different assets for different investor segments. “Legacy” cryptocurrencies such as Bitcoin and Ethereum are a good fit for long-term holding. These coins carry less risk than newer, smaller tokens.

Since the COVID-19-induced market crash, the volatility of both bitcoin and Ethereum has been low if we compare it to newer cryptocurrencies. In the following chart, the volatilities of Bitcoin (BTC) and Ethereum (ETH) peak in the early 2020 COVID-induced crash. Then, the volatility of both assets stays relatively low after spring 2020.

30d volatility btceth

In early-to-mid 2021, younger small-cap tokens showcased escalating volatility during the bull cycle and the May correction.

30d-volatility-multi_asset-btc-eth-aave-uni-dot

Platform upgrades

If the development of Ethereum’s platform includes improvements, the price will increase to reflect the added value. And in fact, the platform has been going through a series of extensive upgrades in its platform since its creation.

The upgrades were initially divided into four main stages: Frontier, Homestead, Metropolis, and Serenity. Serenity, the following stage will concentrate on improving the platform’s efficiency, speed, and scalability.

Ethereum 2.0 is a significant upgrade to the already existing Ethereum blockchain. Namely, this upgrade aims to enable the network to address the bottlenecks and increase the number of transactions. The alternative names for Ethereum 2.0 are Eth2 or Serenity. Thanks to this upgrade, more financial institutions could start using Ethereum.

During the shift to ETH2, the network undergoes a few hard forks. For example, the Ethereum London Hard Fork is due to take place in August 2021. This hard fork (or change in the blockchain) evens out the ETH network fees and limits the ETH supply. 

Ethereum estimates that the 2.0 network could go live by 2022 if the development is successful and goes as planned. At the same time, cautious experts say the upgrade could take years.

Ethereum Supply & Demand

In the second half of 2021, the Ethereum network will undergo a major change. So far, the supply of Ethereum has been unlimited — but that is set to change. After the Ethereum London Hard Fork, the ETH blockchain will burn the fees it charges from crypto users.

This will create deflationary pressure on ETH. In other words, it will be more likely for ETH tokens to increase in value over time since their maximum supply became limited.

Investments & Institutional Usage

In April 2021, European Investment Bank (EIB) announced its plans to offer a two-year digital bond on the Ethereum blockchain. After this update, Ethereum set yet another price record.

But this piece of news was not the only reason behind the recently increasing investment into Ethereum. At the end of March 2021, payments giant Visa announced its first transactions settled with Visa in USD Coin (USDC) and transacted over the Ethereum blockchain.

In 2021, a lot of firms announced their investments in Ethereum. To summarize what happened, after every piece of news about that came out, the Ethereum price increased.

Rise of NFT

Non-fungible tokens (NFTs) are yet another reason for the ETH price increase.

NFTs are a form of cryptocurrency. Their main feature is that instead of holding money, they contain assets like art. A non-fungible object, by contrast, has its distinct value, like a picture or a first edition book. And most of the NFTs are part of the Ethereum blockchain.

The NFT market value tripled in 2020, reaching more than $250 million. Therefore, an increasing amount of trades affected the ETH value.

DeFi explosion

The usage of the Ethereum network is becoming even more extensive in the wake of the decentralized finance (DeFi) explosion. Many DeFi tokens are based on the Ethereum blockchain, and their users, in turn, are paying the Ethereum gas fees. Gas fees are payments made by users to compensate for the computing energy required to process and validate transactions on the Ethereum blockchain.

DeFi, which aims to create an alternative financial system that is more accessible than the traditional one, is primarily built through decentralized applications (Dapps) on the Ethereum network.

Summary & video explanation

As with investing in any other asset, it’s essential to keep yourself updated on the subject. The more information you have, the better decisions you’ll make related to trading. Increased knowledge also helps you to anticipate possible risks related to the investment.

Cryptos are new phenomena that not everybody understands, and the conversation might get very technical due to their nature. That’s why it may be a good idea to watch an introductory video about Ethereum. The video also gives a recap of what Bitcoin and decentralized services are.

What is Ethereum? A Beginner's Explanation in Plain English

Ethereum price history: analysis & graph

Here’s a recap of the critical events in the history of Ethereum. These are mainly the important events from a financial point of view, as we have left out the technological milestones of the platform:

Mid 2014. The founder of Ethereum, Vitalik Buterin, gathers up crowdfunding (ICO, Initial Coin Offering) of 18 million dollars. Ethereum goes into the markets with a value of 31 cents per ether (USD).

May 2016. Ether places itself into the markets with a capitalization that exceeds 1.000 million US dollars.

17 June 2016. A hacker steals 3,6 million ethers, totaling around 70 million US dollars at that time. Ethereum divides into Ethereum and Ethereum Classic.

20 June 2017. Ethereum reaches a value of $376,36, which is more than 121.400% of its initial value.

13 January 2018. Ethereum reaches its historical high of 1.432,88 USD per ether.

2019. That was a pretty stable year, with a slight price rally in Q2. On June 26, Ethereum reached a price of 335 USD, which is the highest price for Ethereum since August 2018.

2020. Ethereum has started with a price of 127 USD in 2020. However, it has reached 741.12 USD at the end of 2020.

2021. From the first days of the year, Ethereum price has increased significantly. On the 10th of May 1, ETH was 4200,86 USD. It was an all-time high up to this date.

The graph below demonstrates the price of Ethereum until mid-2021.

ethereum value chart all time 2021
Source: coinmarketcap

Ethereum Price Predictions

Everybody wants to hear price predictions for their favorite cryptocurrencies. Just like bitcoin, Ethereum has its maximalist fans who make optimistic price predictions. Like bitcoin, Ethereum also has its pessimistic critics.

For example, the CEO of a crypto data firm CryptoQuant Ki-Young Ju tweeted about the price of Ethereum and said the price would increase.

Ben Zhou, co-founder and chief executive officer of Bybit, a crypto derivatives exchange, said, “ETH is somehow finding stars aligning for it at the moment: Gas price worries have largely subsided following the Berlin upgrade, the upcoming EIP-1559 (London) promises further gas cost reduction and a deflationary monetary policy, and the European Investment Bank is issuing bonds on Ethereum.”

Dr. Paul Ennis, an assistant professor at the University College of Dublin, believes ETH could hit the $10,000 mark before 2021 is over.

Ethereum is an asset of high risk and high reward

In general, the price of Ethereum is volatile, as is the case with every other cryptocurrency. Here you can see how the price of Bitcoin influences the price of Ethereum; the lines are not walking hand-in-hand, but you can identify similar, more prominent movements the two currencies are experiencing simultaneously.

Even though the year 2019 brought enormous technological advancements to the platform, price-wise, 2019 was a sideways year for ETH.

2020 was not a significant year for Ethereum either. Generally, the ETH coin price was ranging from 200 to 300 USD. However, in the last months of 2020, the Ethereum price started to increase. In H1 2021, Ethereum broke lots of its price records before the summer correction followed.

The fact that ETHs price is lower than bitcoin is another reason determining the increasing investment into ETH. In 2021, when an Ethereum ETH price was 4,200 USD, a Bitcoin price was approximately 55,000 USD. At the same time, with both ETH and BTC, it’s common practice to buy a fraction of a coin, so one doesn’t have to spend thousands of dollars at once.

We can’t be 100% sure of the future of cryptocurrencies, as they’re still relatively new phenomena in the economy. The oldest one, Bitcoin has existed for a bit over ten years. What we do know is that Ethereum and other digital currencies have evidently seen strong development and growth since they launched. Together they form a true challenge for the traditional ways of finance.

 

Share your thoughts in the comment section below. What will the years 2021 and 2022 look like for ETH? Do you believe ETH will reach 10,000 USD before the end of 2021?

Written by Ali Abaday

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