After a relatively stable April characterized by reduced demand on the network and sideways price movement, the second-largest cryptocurrency, Ethereum (ETH), may be poised for a shift.
ETH holders are optimistic about May. This optimism is driven by strengthening fundamentals, the long-awaited Pectra upgrade, and renewed interest from institutional investors through ETH ETFs.
ETH suffered in April, but May brings a glimmer of hope.
In April, data on the chain showed a decline in user activity across the Ethereum network, while the broader market stagnation kept ETH trading below key resistance levels.
According to Artemis, during the 30-day period, user demand for Ethereum significantly declined, leading to a decrease in active addresses, daily transactions, and consequently network fees and revenues.
This, along with the broader market crash, has affected ETH's performance, causing the price of the leading altcoin to remain below the $2000 level throughout April.
However, in an interview, Gabriel Halam, a research analyst at IntoTheBlock, stated that the price of ETH could exceed the $2000 mark in May and stabilize above it.
For Halam, increased capital inflows into spot ETH ETFs, Ethereum's dominance in the DeFi sector, and the upcoming Pectra upgrade could help make this a reality.
ETF inflows, DeFi dominance, and Pectra: Ethereum's triple boost in May.
According to SosoValue, total monthly net inflows to ETH ETFs reached $66.25 million in April, indicating a shift in market sentiment compared to the $403.37 million in net outflows recorded in March.
This shift from strong external flows to modest internal flows indicates that investor confidence in the altcoin is gradually returning.
This suggests that institutional players may be well-positioned for a long-term rise, especially as the fundamentals of the Ethereum network begin to improve, one of which is its increasing dominance in the DeFi sector.
0% of the total value locked (TVL) in DeFi protocols is on the Ethereum blockchain. This means that Layer 1 (L1) remains the preferred settlement layer for many financial applications, including lending, storage, yield farming, and decentralized exchanges.
Therefore, in May, if broader market conditions begin to improve, renewed capital inflows into Ethereum's DeFi sector could, in turn, increase demand for ETH and support its price rise.
Moreover, according to Halam, the upcoming Pectra upgrade for Ethereum, scheduled for release on May 7, 2025, could further aid ETH's price performance this month. This update promises to enhance network scalability, reduce transaction fees, bolster security, and introduce smart accounting functionality.
These improvements may lead to increased demand from users during May, which could drive up the price of ETH, provided that macroeconomic conditions remain favorable.
The rise in ETH's value depends on the overall stability of the market.
Nevertheless, broader economic pressures pose a significant risk to ETH in May. Halam noted that "the upcoming Consumer Price Index report on May 13 will be particularly important, as it is likely to affect market sentiment and contribute to this volatility.
This is due to inflation or hawkish signals from the Federal Reserve potentially exacerbating risk aversion sentiments in the cryptocurrency market, putting pressure on ETH's price.
Halam also pointed out that the price of ETH remains closely tied to U.S. stocks. Therefore, if the stock markets face renewed pressures this month due to inflation fears or expectations of interest rate hikes, altcoins may experience similar pressures.
Looking ahead to May, if this strong correlation continues, it means that Ethereum's exposure to market volatility and inflation-related pressures will likely be similar to that of traditional risk assets such as the S&P 500 index. Therefore, any decline in the broader market or increasing inflation concerns affecting stocks could negatively impact Ethereum's price, as noted by Gabriel Halam, a research analyst at IntoTheBlock.
While sustainable moves above $2000 are still possible, any rise is likely to depend on inflation trends, risk sentiment in traditional markets, and the extent to which ETH is correlated with stocks.