In 2022, Ethereum has met the same fate as other cryptocurrencies. The asset has dropped to £942 from its previous price of around £3,000 in 2021. Ethereum’s price has been at its lowest since the beginning of 2021. The prices of cryptocurrency assets are highly volatile, and it is impossible to avoid price surges. These prices are vulnerable to sentiments, supply, demand, and competition. This article will analyze the role each of the mentioned factors is likely to affect the price of Ethereum going forward. In addition, we will also examine the impact of merging Ethereum 1 and Ethereum 2 on the asset’s future price.

Sentiments

Like any other crypto asset in the market, Ethereum is affected by sentiments and opinions. The “fear and greed indexes” is one of the tools most investors use to try and predict the market’s trajectory. A rise in the fear index means that asset holders are concerned that the asset’s price might fall and thus sell the asset. When the greed index rises, more individuals acquire the asset as they expect the prices to rise for them to get returns.

Another method deployed to gauge sentiments is the flow of Ethereum. When there is less outflow of ETH from crypto exchanges, the asset is being held in anticipation of a price increase. Three weeks ago, data released by Coinmetrics revealed a massive rise in ETH withdrawals. The data showed that currently, there were 373,831 Ethereum withdrawals from the previous 121,328 Ethereum withdrawals. This implies that more asset holders are releasing their assets in anticipation of a price drop.

Demand

Ethereum’s daily transactions indicate the asset’s demand. On June 20th, Asset holders carried out only around one million transactions. This is a significant drop in transactions from the peak value of 1.7 million on May 9th. Between the summer of 2020 and 2022, the number of daily transactions grew by more than 500,000 daily transactions. However, since the last summer, the number of daily transactions has remained stagnant.

On the other hand, it’s worth noting that the number of searches of the word Ethereum has fallen since peaking in May 2021. The number of active addresses can also indicate the demand for the asset. Data from Glassnode indicates that active addresses have dropped to around 450,000 from 800,000 dynamic addresses recorded in May 2021.

Competition

Ethereum is the second biggest crypto asset in the current crypto exchange market. Therefore, it’s typically compared against the largest crypto asset-Bitcoin. It’s not easy to directly compare Bitcoin to Ethereum, as while the former was designed to only facilitate payments, the latter accommodates dApps and smart contracts. However, a comparison is inevitable. The merge scheduled to happen in August this year will shift the competition of Ethereum from being POW-consensus-based to a POS-based consensus. This means that Ethereum will now compete with other altcoins with similar consensus mechanisms, that’s Solana and Cardano.

Supply

Ethereum’s supply regulations are quite different from those of Bitcoin. While BTC has an upper limit of mined assets, Ethereum only has a yearly cap of 18 million. In addition, block addition in the Ethereum blockchain happens every 13-15 seconds, and miners are awarded 2 Ethereum for every block they add. For each uncle blocks mined miners, associates are awarded around 0.06-1.75 Ethereum. It’s crucial to note that there is no bearing on the value of Ethereum supply. If there weren’t spontaneous demand in Ethereum, the supply rates would be relatively constant. However, the upcoming technology that will see Ethereum move from a proof of work mechanism to a proof of stake mechanism will significantly cut the supply of the asset, thus increasing its price.

Conclusion

The merger will have a positive impact on the prices of Ethereum; however, experts and critics have also cited that there could arise some significant drawbacks to this merger. According to these critics, the merge would render the ETH vulnerable to cyber-attacks and manipulation by a small cartel group of coin owners.