In its recovery from last year, Ethereum has shown excellent dynamics in the previous two months. Its price has increased by 31% and overcome the important $3,000 level. The altcoin's boom is due to both the revival of the DeFi sector and hopes for spot ETFs emerging as early as May.
Image source: StormGain Cryptocurrency Exchange
Over the past five months, spot ETFs have been the undoubted driver of the cryptocurrency market's growth, which has led to Bitcoin's market share strengthening to 52%.
Image source: glassnode.com
Several signs point to the imminent return of the altcoin season, with the initial momentum spreading from Bitcoin to other coins. After a brief pause, altcoin capitalisation returned to growth, which reset Glassnode's indicator on 4 February.
Image source: glassnode.com
Among altcoins, the most notable is Ethereum, which leads the DeFi sector in capitalisation, number of active validators and staked funds (TVL). This year, TVL grew by 54% to $46.4 billion.
Image source: defillama.com
The DeFi revival is due to the growing popularity of new projects. For example, the EigenLayer platform has managed to raise $6.8 billion since the beginning of the year, thanks to the emergence of a new type of liquid restaking tokens or LRT. These tokens are designed to displace the leadership of stETH, which Lido issues in exchange for ETH locked in staking.
Simply put, both stETH and LRT increase the profitability of ETH staking by re-lending funds. First, ETH is locked, and platform tokens are issued, which users can deposit or sell on another platform. All of this significantly increases the associated risks but also allows you to make the most out of the available ETH.
Without such tricks, the annual yield from ETH staking is less than 4%. Yield floats since it's affected by the number of validators and transaction processing fees.
Image source: beaconcha.in
The Ethereum network's deflationary nature is another reason for its growth. Since the switch to PoS, the number of coins in circulation has decreased by 362,000 ETH (~$1.1 billion) because part of the reward paid by the sender for processing transactions is burned.
Image source: ultrasound.money
However, speculation surrounding the approval of Ethereum spot ETFs in May should be treated with caution. The SEC has always spoken of Bitcoin as a commodity, which has helped promote exchange-traded funds. The regulator labelled Ethereum as a security immediately after it switched to PoS and even forced a number of cryptocurrency exchanges to stop staking it.
StormGain Analytical Group
(platform for trading, exchanging and storing cryptocurrency)