3 reasons why the price of Ethereum may not reach $5,000 anytime soon

Ether (Ethereum) Since Ethereum co-founder Vitalik Buterin announced it at StartmeupHK Festival 2021, the price has been falling in a spiral.In a fireside chat on May 27, Vitalik stated that several internal Team conflicts lead to delayed release of proof of stake migration.

As Cointelegraph reported, the “first phase” of introducing scalability through sharding has been postponed to 2022.In addition, DeFi’s The inherently decentralized nature may not be entirely beneficial Because fragmented processing needs to run transactions through the relay chain.

Coinbase’s Ether price (in U.S. dollars). Source: TradingView

It is impossible to determine the reason for the sharp decline of Ether from the highest point in history, but the soaring gas fee has definitely affected investors’ expectations. This not only shows the limitations of the network, but also incentivizes traders to try to replace the network, such as Binance Smart Chain (BSC) and Polygon’s layer 2 solutions.

Ethereum 7-day average gasoline fee (USD). Source: CoinMetrics

The graph above shows that the average petrol fee of $45 occurred a full month later Berlin upgrade goes live on April 15The consensus of the Ethereum community is that Berlin will have less impact in the short term, but it paved the way for the London hard fork EIP-1559 protocol to be scheduled on August 4.

This brings us to one of three factors that may have a negative impact on the price of ETH in the short term.

London fork delay

The Ethereum London hard fork is part of the roadmap for the final Eth2 release in 2022. The long-awaited update is scheduled for August 4th, but it has been postponed due to the aforementioned late July schedule.

Miners will be most affected by the EIP-1159 proposal, which aims to burn part of the fees generated on the Ethereum blockchain, thereby reducing their income. In addition, EIP-3554 introduced incremental difficulty adjustments to incentivize migration to a new proof-of-stake blockchain.

The delivery record of Ethereum developers also did not inspire confidence. If part of the upgrade occurs and the more controversial changes are delayed, the price of Ether may fall, as part of the current rebound is based on the hype surrounding the hard fork.

Outflow of miners

This time, the main concern is not technology but society. Once Ethereum miners know that their sources of income will gradually be cut off, then some competing network benefits are a matter of time.

Although most smart contract blockchains are designed for the proof-of-stake consensus model, some lesser-known projects may change their algorithms to support Ethash mining.

Analysts should not give up the possibility that Binance Chain or Solana can use the additional hashing power caused by the outflow of Ethereum miners to implement an additional layer of security. Although this situation is far away, these trends will undoubtedly put pressure on the price of Ethereum.

Multi-chain dApp

The longer it takes to fully implement Eth2 and the dApp to upgrade its code to support parallel processing (shardin) functions, the higher the motivation to add multi-chain support.

Curve and AAVE, two leading DeFi protocols locked by total value, have added support for blockchains other than Ethereum. At the same time, according to DeFi Llama’s data, Polygon holds a Curve contract worth 550 million U.S. dollars, and AAVE holds another 1.8 billion U.S. dollars.

Finally, the most likely “Ethereum killer” will be the network itself, because the delay in scaling the solution will prompt users and dApps to switch to alternative solutions. At the same time, the migration to PoS has opened up space for strengthening competing blockchains.

The views and opinions expressed here only represent author It does not necessarily reflect the views of Cointelegraph. Every investment and transaction involves risks. When making a decision, you should conduct your own research.

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