The second-largest cryptocurrency in the world continued to remain in the spotlight during 2020, as investors and traders piled onto large-cap cryptocurrencies for another year. With over $45 billion in market capitalization, Ethereum solidified its leading market position, and based on the current market condition, it has more potential for growth in the year ahead.
With the CMarkets Group support, traders are able to get updated information about our services, but the current article will focus on some of the prospects for ETH as we get closer to 2021.
2020 performance — a tailwind for 2021?
Although the cryptocurrency market was vulnerable during March this year, when even the largest tokens dropped by more than 50%, what followed that took by surprise even the most optimistic experts. In the case of Ethereum, the price bottomed around the $90 area and then started an impressive bull run, almost reaching $490 on September 1st.
Based on the chart below, we can easily notice the price continues to respect a trendline going back to the March lows, and what this all means is that we are getting close to 2021 with very strong market sentiment.
Ethereum depends on the DeFi performance
Ethereum (ETH) had been outperforming most of the other large cryptocurrencies during the 2020 summer and the main reason for that has to do with the DeFi sector. As we all know, most of the DeFi tokens are based on the Ethereum blockchain and as names like Chainlike grew at an accelerated pace, ETH was one of the main beneficiaries.
The opposite occurred during the past few months, when ETH was one of the underperformers, as what was assumed as a DeFi bubble popped and DeFi tokens lost value substantially. This means that in 2021, we should expect to see the same correlation between DeFi and Ethereum and a new reflation in DeFi tokens will need to push ETH even higher.
Investors continue to be confident DeFi can bring innovations into the crypto world and with record funds locked in DeFi apps, this should be one of the main drivers for Ethereum next year.
Ethereum 2.0 to provide more new features
In 2021, Phase 1 of the Ethereum 2.0 is anticipated. If Phase 0 will bring the implementation of the “Beacon chain” and the Proof of Stake (PoS) mechanism, in phase 1, the Ethereum blockchain will integrate “shard chains.
Basically, the blockchain will be split into 64 different chains, allowing for parallel transactions, enabling the handling of several hundred times more data than Ethereum 1.0.
All these blockchain improvements will provide new reasons for Ethereum investors to continue to expect token price growth. The implementation of PoS is assumed to facilitate more stable valuations during periods of uncertainty.
Up until now, the rollout of the Ethereum 2.0 implementation faced several delays, but 2021 seems like the big year. Although investors have already priced in some of the benefits, there is still unexplored upside potential.
Based on all the reasons talked about, 2021 is shaping up to be a very interesting year. Thanks to the CMarkets Group support, you can find out more about how you can trade ETH with several different instruments.
ETH is still one of the largest cryptocurrencies in the world and since major blockchain improvements are coming due in 2021, what this all means is that this token will continue to dominate the market alongside Bitcoin. Keep in mind that this article is not investment or trading advice, but only our opinion on Ethereum. You should consider that cryptocurrencies are volatile instruments and uncertainty can dampen even the best-case scenarios.