Dencun Upgrade Boosts Ethereum’s Chances of Hitting US$3,000

Ethereum (ETH), the second-largest cryptocurrency by market capitalization, is approaching a major milestone of US$3,000 as it prepares for the Dencun upgrade, a network update that will introduce several improvements and features to the platform.

What is the Dencun upgrade?

The Dencun upgrade is scheduled for March 13, 2024, and will implement four Ethereum Improvement Proposals (EIPs) that aim to enhance the security, scalability, and usability of the Ethereum network. The most anticipated EIP is EIP-4844, also known as “Proto-Danksharding”, which will enable parallel execution of transactions across multiple shards, or sub-networks, of Ethereum. This will significantly reduce the congestion and fees on the main chain, especially for layer 2 solutions that rely on rollups, such as Optimism and Arbitrum.

Other EIPs included in the Dencun upgrade are EIP-4833, which will improve the randomness of the proof-of-stake consensus mechanism, EIP-4834, which will increase the gas limit per block, and EIP-4835, which will introduce a new opcode for efficient verification of Merkle proofs.

Why is US$3,000 a significant milestone for Ethereum?

Ethereum has been on a strong uptrend since the beginning of the year, gaining over 27% in value and outperforming Bitcoin, which rose by around 3% in the same period. Ethereum’s price has surpassed US$2,980 in the last 24 hours, according to data from TradingView, marking its highest level since May 2022, when it reached an all-time high of US$3,016.

One of the main drivers of Ethereum’s rally is the growing demand for its native token, ETH, which is used to pay for transactions and smart contracts on the network, as well as to stake in the proof-of-stake system. According to data from SpotOnChain, a whale has recently accumulated a staggering 54,721 ETH, valued at over US$150 million, through transactions on Binance and the decentralized exchange 1inch, averaging a purchase price of over US$2,845 per ETH. This whale has nearly tripled their Ethereum holdings in just 24 hours, and also acquired about 5,485 ETH, liquid staking assets from Lido Finance, valued at nearly US$16 million.

Liquid staking is a popular way to earn passive income from Ethereum, as it allows users to stake their ETH without locking it up in the network and receive a tokenized representation of their stake that can be used in other applications. The total value locked in liquid staking protocols has skyrocketed almost 600% since January last year, as reported by DeFiLlama.

Another factor that is boosting Ethereum’s price is the anticipation of a spot Ethereum exchange-traded fund (ETF), which would allow investors to gain exposure to ETH without having to buy or store it directly. Eight prominent asset managers, including BlackRock, ARK Invest, and Franklin Templeton, have filed for a spot Ethereum ETF with the US Securities and Exchange Commission (SEC), which is expected to make a decision on VanEck’s application by May 23. A spot Ethereum ETF would likely increase the institutional adoption and liquidity of ETH, as well as its legitimacy and credibility in the eyes of regulators and investors.

Ethereum is facing some challenges, such as the competition from other smart contract platforms, such as Cardano, Solana, and Polkadot, which claim to offer faster, cheaper, and more scalable solutions. Ethereum is also dealing with the environmental concerns over its high energy consumption, which is expected to decrease significantly once it fully transitions to proof-of-stake.

However, Ethereum also has many opportunities to grow and innovate, such as the development of the decentralized finance (DeFi) sector, which is largely built on Ethereum and offers various financial services and products, such as lending, borrowing, trading, and insurance, without intermediaries. The total value locked in DeFi protocols has reached over US$100 billion, according to DeFi Pulse, indicating the huge potential and demand for this emerging industry.

Ethereum is also the leading platform for non-fungible tokens (NFTs), which are unique digital assets that represent ownership of various forms of art, collectibles, gaming items, and more. The NFT market has exploded in popularity and value in the past year, with some NFTs selling for millions of dollars. Ethereum is the dominant platform for NFT creation and trading, hosting some of the most popular NFT projects, such as CryptoPunks, CryptoKitties, and Axie Infinity.