Ethereum will almost certainly be one of the most fascinating cryptocurrencies to follow in 2022. The outlook for Ethereum is generally optimistic because the project is currently moving towards its largest milestone ever – the transition to Ethereum 2.0. Even though the full transition could take a couple more years, it’s almost certain that we will see some big targets in the Ethereum 2.0 process be reached in 2022.
Since most people who follow crypto mostly focus on Bitcoin, it’s easy to overlook the fact that ETH massively outperformed BTC in 2021. During the year, Bitcoin gained about over 60%, while Ethereum holders enjoyed huge 410% gains. At the time of writing, Ethereum represents around 19.8% of the total cryptocurrency market capitalization. If ETH has another big year, we could see Ethereum start threatening Bitcoin’s position as the most dominant cryptocurrency in the market.
It’s impossible to know for sure whether Ethereum will continue shining in 2022. However, we can look at some of the most important factors to make informed Ethereum predictions.
Here’s what you need to know before making an Ethereum prediction for 2022
One of the ways to make a forecast about what’s going to happen to a cryptocurrency’s price is to consider technical analysis. This would include identifying key price support and resistance levels, which can inform us about the price levels where we can expect to see the largest amounts of buying or selling pressure. Crypto traders also like to consider metrics like moving averages and RSI to help them determine good buying opportunities.
In the case of Ethereum, it’s much more interesting to look at fundamental metrics, because there’s simply so much going on around the project. Compared to a “traditional” cryptocurrency like Bitcoin, Ethereum offers a lot more flexibility, as the platform supports a huge variety of use cases like decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), blockchain gaming, and much more.
Even though Ethereum enables all the use cases outlined above, the network has been struggling with high transaction fees – it simply wasn’t designed to handle such a high volume of transactions efficiently.
The road to Ethereum 2.0
Thankfully, Ethereum 2.0 will address the majority of Ethereum’s current issues, by moving away from the outdated Proof-of-Work model (mining) to a much more eco-friendly and efficient Proof-of-Stake model (staking). When Proof-of-Stake is combined with sharding, which will reduce the load on the most critical components of the Ethereum blockchain, the network will be able to handle a lot more transactions while keeping costs low.
In these early stages of the transition to Ethereum 2.0, ETH holders are already able to stake their tokens to help secure the network and earn passive income on their holdings. At the time of writing, there’s more than 8.9 million ETH staked in the Ethereum 2.0 deposit contract, which translates to over $30.5 billion. This amount is especially impressive if we consider that stakers can’t withdraw their staked ETH yet, and we’re probably going to see a big influx of staked ETH once the withdrawal functionality is enabled and more ETH holders become comfortable with staking.
We also have to consider EIP-1995, an upgrade to Ethereum that went live in August of 2021. Thanks to the upgrade, ETH coins that are used to pay for the network’s base transaction fee are burned (permanently removed from circulation). Over time, this will help make ETH more scarce, which could be a big benefit to long-term ETH holders.
In 2022, we can also expect to see continued growth in layer 2 scalability solutions for Ethereum. These are blockchain platforms that leverage the security of Ethereum while keeping transactions fast and cost-efficient. Some layer 2 solutions like Optimistic Ethereum and Arbitrum One are already live. In 2022, we can not only expect existing layer 2s to see big upgrades, but also new layer 2s to enter the arena as well. Growth in layer 2s could have a very positive impact on Ethereum, as it would reinforce its position as the leading blockchain for smart contracts while also giving its users access to faster and cheaper transactions.
Despite the optimistic outlook for Ethereum, competitors are staking their claim
Of course, there’s also factors that could impede Ethereum’s growth in 2022. Besides a broader bearish trend in the cryptocurrency market, competitors like Solana, Avalanche and Polkadot could take a bite out of Ethereum’s market share. The high transaction fees that Ethereum users are currently dealing with gave these platforms an opportunity to attract new users, and many of them took full advantage.
For example, strategists at major investment bank JPMorgan have said that Ethereum’s dominance in the decentralized finance space should not be taken for granted, and pointed out the rapid growth of alternative blockchain platforms.
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