Ethereum Price Prediction: Traders Are Nervous as ETH Nears $4K – Here’s Why

Ethereum (ETH) has recovered remarkably in a relatively short period, bouncing from around $1,400 to nearly $4,000 in just three and a half months.

The market hit bottom at the beginning of April and started its ascent. However, an additional ingredient ignited ETH’s strong rally – the successful implementation of the Pectra upgrade.

Pectra has changed multiple facets of Ethereum’s operational framework. It makes the network more scalable through an increase in the amount of data that can be added to each ETH block (also known as ‘blobs’) and also supports paying for gas fees in other tokens instead of just ETH.

Moreover, Pectra introduces automatic burns for ETH. A portion of gas fees will now be automatically used to reduce the token’s circulating supply, which should also have a positive impact in its long-term performance.

ETH/USD Weekly Chart (Bitstamp) – Source: TradingView

However, as the price nears the $4,000 area, the ‘ghost of past Christmases’ comes back to hunt bulls as ETH experienced steep declines upon hitting this threshold the last three times it happened.

Is the fourth time the charm? What has changed from a fundamental standpoint that could justify a move above this level?

On-Chain Data Says ETH Is ‘Undervalued’

Let’s take a closer look at on-chain data to see where various metrics were back when ETH hit the $4,000 mark those last three times. For the purpose of this analysis, we will ignore the November 2021 all-time high as conditions were entirely different back then.

Let’s focus on the March 2024, May 2024, and December 2024 retests as conditions were similar.

The first thing we can see is that stablecoin reserves have exploded in just a few months meaning that a lot of money has been moved into the Ethereum ecosystem, even as the price was collapsing.

Stablecoin reserves mean that additional funds are being deposited into decentralized finance (DeFi) applications. This should result in higher network activity and signals increased adoption rates.

Pectra May Have Solved Ethereum’s Main Roadblock

The world has been progressively embracing Ethereum but the market’s response to that has been somewhat slower than expected.

There were, however, clear reasons why the price of ETH dropped so sharply and, at some point, underperformed most of its peers. Scalability.

The Ethereum Virtual Machine (EVM) struggled to keep up with the rise of faster blockchains like Solana and Sui. However, none of these compares to the former in terms of decentralization.

Blockhains Market Share in DeFi Space by TVL – Source: DeFi Llama

This is the reason why Ethereum has maintained its lead in the DeFi ecosystem with 60% market share. It is the safest network and the least susceptible to a 51% attack both because of its size and the large network of independent validators that keep the blockchain running.

Enters Pectra. Higher stablecoin reserves prove that, in investors’ minds, Ethereum already offers a more scalable environment for dApps to thrive.

Now that the United States has created a regulatory framework for crypto, we could see an explosion in the mainstream adoption of DeFi and Ethereum will be the first blockchain in line to capitalize on that growth.

Ethereum has progressively become more and more undervalued even though its DeFi ecosystem is thriving. Is this bullish cycle the one that will correct this distortion? If that’s the case, we could easily see ETH exploding to $5,000 again or beyond.