What Determines the Price of ETH? (2024)

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Ethereum (ETH) has undoubtedly made a name for itself in the world of cryptocurrency, positioning itself as one of the most valuable digital assets available. As of July 2024, Ethereum has solidified its position as the second-largest cryptocurrency globally, boasting a market cap of over $395 billion. In the past year alone, Ethereum has seen a price increase of over 75%. This significant growth has sparked the interest of many investors looking to capitalize on the potential of Ethereum.

Understanding how Ethereum's price and value are determined is crucial for investors looking to make informed decisions when buying and selling ETH. Unlike traditional assets like stocks or commodities, cryptocurrencies are decentralized and operate on a blockchain network. This means that factors influencing the price of Ethereum are unique to the world of digital assets.

Let's explore the key factors that drive the price of Ethereum to better understand its market behavior.

Ethereum Overview

Ethereum is a decentralized blockchain network that supports smart contracts. Smart contracts execute agreements and holds escrow like traditional contracts. Unlike traditional contacts, you don’t need a third party, such as a court, to enforce the contract. Smart contracts are enforced by sets of code on Ethereum’s blockchain, commonly referred to as dApps.

Smart contracts are Ethereum’s main competitive advantage over Bitcoin. While Bitcoin is a great store of value, it doesn’t allow for complex financial transactions to be done on its blockchain. With smart contracts, you can loan or borrow money, insure property and even trade derivatives. All of these functions have already been made available on Ethereum, and many more protocols are being developed to extend the use case for smart contracts.

Technically, Ethereum is the blockchain network, and ether is Ethereum’s native token. ETH and Ethereum are commonly used interchangeably. Ethereum’s blockchain also allows for new tokens to be created which serve specific purposes. Here are some of the most common types of Ethereum tokens:

• ERC-20 tokens are the most common type of Ethereum token. These types of tokens are fungible tokens –– each coin is identical and holds the same value. To learn about ERC-20 tokens in more detail, check out the Ethereum Foundation’s website. Coins like Uniswap (UNI), Binance Coin (BNB) and Tether (USDT) are ERC-20 tokens.
• ERC-721 tokens are non fungible tokens (NFTs). These tokens all hold their own distinct value and have unique properties tied to each token. NFTs are most commonly used for in-game collectibles, such as video game skins or exclusive in-game items.
• ERC-223 tokens are fungible tokens that are very similar to ERC-20 tokens. While ERC-20 tokens can be lost in a failed transaction, ERC-223 behaves exactly like Ethereum transactions, so they cannot be lost.
• ERC-404 tokens are an experimental type of token that gained popularity in 2024. It combines features of ERC-20 tokens, such as divisibility and fungibility, with features of ERC-721 tokens.

Different types of tokens on Ethereum’s blockchain allow for a variety of use cases. Ethereum smart contracts have the potential to tokenize land deeds, auto loans, financial derivatives and even voting rights.

Brief History of Ethereum

Vitalik Buterin first conceptualized a smart contract-enabled blockchain in 2013. At the time, Buterin was only 18 years old, but he quickly gained the support of blockchain enthusiasts. Ethereum hosted its ICO (Initial Coin Offering) in 2014, and by 2015 it was trading on cryptocurrency exchanges for around $2.

Ethereum’s price first began to skyrocket in spring 2017. At the time, each ETH was trading for around $10, but by the summer of 2017, ETH reached triple digits. ERC-20 tokens were being created by developers daily, although few of these projects had long-term sustainability. Ethereum’s price topped out in January 2018, surpassing $1,400.

During the 2021 bull market, Ethereum's price approached nearly $5,000, recording an all-time high (ATH) of $4,891.70, before retracing over the following years. In 2024, Ethereum still holds the spot as the 2nd largest cryptocurrency by market capitalization with a market cap of over $395 billion.

The cryptocurrency bear market (2022-2023) washed out many ERC-20 tokens that were developed during the bull market. Many of these projects were rushed to the market and under-delivered on their promises.

During the bear market, however, more promising projects on Ethereum were developed. These new dApps (decentralized applications) mainly focus on Decentralized Finance (DeFi). This aims to replace traditional banking services with smart contracts on the blockchain. Decentralized lending, insurance and automated trading are all examples of promising new developments on Ethereum’s blockchain.

It comes as no surprise that DeFi tokens are trending up in tandem with Ethereum because it is the network that hosts the most prominent DeFi tokens.

How is Ethereum Value Determined?

Ethereum’s price is determined by market supply and demand for the cryptocurrency. Just like stocks, cryptocurrency markets have order books with buy and sell orders. An increase in demand for Ethereum will drive the price up and an increase in sell order supply will drive the price down.

Unlike Bitcoin, ether has more intrinsic utility. This is because ETH is needed to transact on any decentralized application built on the Ethereum blockchain. As more transactions on Ethereum occur, the price of transaction fees increases, as transaction fees are based on supply and demand.

Moreover, Ethereum's economic model is arguably stronger than Bitcoin's. While Bitcoin has a set, decreasing inflation with a max supply of 21 million, Ethereum's supply is dynamic. Following Ethereum's EIP-1559 upgrade, ether has been deflationary – getting scarcer as time goes on.

What Affects ETH Price?

Many factors affect the market supply and demand for Ethereum. As stated previously, the market supply and demand for Eth tokens is what solely determines the price of Ethereum. The most important factors that affect the supply and demand for Ethereum are outlined below.

Technological Developments and Upgrades

As a blockchain-based platform, Ethereum is subject to technological developments that can affect its price. Upgrades to the Ethereum network, such as the transition from proof of work to proof of stake known as The Merge, can impact the scalability, security and efficiency of the network, which in turn can affect the price of Ethereum. Additionally, developments in decentralized finance (DeFi) and non-fungible tokens (NFTs) can create new use cases for Ethereum and drive demand for the cryptocurrency.

Additionally, ERC-20 tokens increase Ethereum’s utility. Developers can code smart contracts on Ethereum to create decentralized applications that typically host their own ERC tokens. Regardless, Ethereum tokens are still needed to transact on Ethereum’s blockchain, further increasing the demand for ETH

Regulatory Environment

Regulation plays a significant role in the price of Ethereum. Negative regulatory developments, such as bans on cryptocurrency exchanges or restrictions on trading, can lead to a decrease in demand and a corresponding decrease in price. On the other hand, positive regulatory developments, such as the approval of an Ethereum ETF or the recognition of Ethereum as a legal form of payment, can lead to an increase in demand and a corresponding increase in price.

Competition and Market Trends

Ethereum faces competition from other cryptocurrencies and blockchain platforms, such as Bitcoin, Ripple and Cardano. Market trends and developments in competing projects can also affect the price of ETH. For example, if a new blockchain platform emerges with better technology or features, it could potentially draw users and investors away from Ethereum, impacting its price. Moreover, the price of Bitcoin affects the cryptocurrency market as a whole. When Bitcoin is bullish, it’s likely other tokens like Ethereum will be, too.

Market Sentiment and Investor Confidence

Market sentiment, or the overall attitude of investors towards a particular asset, can also influence the price of Ethereum. Positive news stories, endorsem*nts from influential figures, and general optimism about the future of the cryptocurrency market can lead to increased demand for Ethereum and higher prices. Conversely, negative news stories, regulatory crackdowns, and concerns about the security of the Ethereum network can lead to decreased demand and lower prices.

Media coverage also plays a large role in stimulating demand for cryptocurrencies. While most mainstream media covers Bitcoin, few have yet to broadcast Ethereum to the masses.

How High Can the Price of Ethereum Go?

Historically speaking, Ethereum’s price has been more volatile than Bitcoin’s. If you invest in Ethereum instead of Bitcoin, you’d be increasing your risk for more upside potential.

Some investors claim that Ethereum’s market cap will surpass Bitcoin’s valuation due to the wide range of use cases on Ethereum. Some analysts predict that Ethereum can reach $40,055.99 in the coming years.

In the 2017 bull run, Ethereum reached a price of about 0.1 Bitcoin per Eth token. Assuming we can reach this proportion again, Ethereum would be trading around $7,000 at the current price of Bitcoin.

However, it’s unlikely that Bitcoin has reached its top for this bull market. In years past, Bitcoin has increased about 10 to 20 times in value each bull run. Bitcoin would have to increase around 125% this bull run to reach $150,000. If this happens and Ethereum reaches its previous Bitcoin proportion, Ethereum would be trading for over $4,000 per token.

Is Ethereum a Good Investment in 2024?

At the beginning of January this year, ETH was trading for around $2,100. As of writing, the price of ether climbed to over $3,000. Many investors believe we're still in the early stages of this bull market, with price predictions for ETH ranging from $5,000 all the way up to over $160,000.

Decentralized finance has recently gained attention from investors with applications in liquid staking and multi-chain lending gaining significant traction. Because no singular entity can control decentralized platforms, they cannot be corrupted by institutions. Decentralized Finance applications like Pendle (PENDLE) and EigenLayer have accrued billions of dollars in deposits, showcasing the demand for Ethereum's on-chain applications.

Ethereum Price Prediction

It’s hard to predict where the price of Ethereum is headed, but if history is any indicator Ethereum has much more room to grow. With new decentralized finance programs being built on Ethereum’s network, more ETH is demanded to pay transaction fees. This is why some investors see Ethereum as the economic bandwidth of the internet. ETH price forecasts from experts and analysts see the token could hit $42K by year 2030.

Bitcoin or Ethereum?

The biggest advantage Ethereum has over Bitcoin is its ability to host smart contracts on its blockchain. Bitcoin is great to use as a store of value, but its use-case in DeFi is limited. Also, some investors believe that Bitcoin has less growth potential than Ethereum.

While Bitcoin already boasts a market capitalization over $1.3 trillion, Ethereum's market cap sits at about a fifth of Bitcoin's. This means less capital inflows are needed to push the price of ether upwards, making it easier for ETH to appreciate than Bitcoin, given the same demand.

Best Exchanges for Ethereum

To buy ETH you need to set up a cryptocurrency brokerage account. Coinbase is a great option for beginners since it’s easy to use and offers a mobile app. Gemini is another cryptocurrency exchange that offers a wide variety of crypto tokens, including Ethereum.

Alternatively, you can use a decentralized exchange if you already own cryptocurrencies. Decentralized exchanges offer a platform for you to exchange your cryptocurrencies for Ethereum or any other ERC-20 token.

Unlock the Potential of Ethereum

As with any financial asset, the price of ETH is determined by a variety of factors that influence supply and demand. As the cryptocurrency market continues to evolve, understanding the factors discussed above, investors can make more informed decisions when trading ETH and navigate the volatile crypto market effectively.

Frequently Asked Questions