Prediction: 2026 Will Be the Year of Ethereum (ETH)

In the crypto rallies of 2018 and 2021, Ethereum (CRYPTO: ETH) started to close the gap with Bitcoin (CRYPTO: BTC) in crypto market dominance. Talk of the "flippening" -- the point where Ethereum overtakes Bitcoin -- was common.

But last year's rally was different. Bitcoin soared, and the gap between the cryptocurrencies grew. At one point, Bitcoin accounted for over 60% of the crypto market, while Ethereum's share fell to less than 8%. Institutional, corporate, and government interest in Bitcoin increased its dominance and, to some extent, caused it to decouple from the rest of the market.

Image source: Getty Images.

However, as the narrative around Bitcoin as a form of digital gold loses its shine, the pendulum is swinging back toward Ethereum. It is the machine that powers a large part of the decentralized finance and stablecoin market, and its utility and strong track record are a powerful combination.

Ethereum's smart contract lead

Ethereum was designed as a programmable cryptocurrency. It was the first to introduce smart contracts, tiny pieces of self-executing code that live on the blockchain. Being first to market has advantages. Almost 60% of the funds locked up in decentralized finance are on the Ethereum ecosystem, per DefiLlama.

However, there are disadvantages too. Ethereum is slower and less scalable than other, newer blockchains. It has had to carry out some major upgrades while keeping the engine running. It also relies heavily on layer 2 blockchains -- ones that process transactions off-chain -- for efficiency. One analyst called those layer 2s parasites, taking a large chunk of fees while sucking the processing power out of the network.

Why Ethereum could soar in 2026

There are several potential drivers for Ethereum growth this year. Not only might we see a dramatic increase in usage, but institutional and corporate treasury buying could soar.

Here are three main shifts that could make it the year of Ethereum:

• Adoption: Stablecoin legislation and increased interest in real-world tokenization mean that the whole blockchain industry could be on the verge of significant change. Nasdaq has already submitted a proposal for tokenized security trading, and a few months ago, Standard Chartered CEO Bill Winters told a conference that all transactions would settle on the blockchain.
• Staking: Ethereum is a staking crypto, which means investors can earn rewards by locking up their holdings. However, most of the spot Ethereum ETFs do not pay staking rewards. That looks likely to change this year, particularly as BlackRock put in an SEC filing for a staked Ethereum ETF in December.
• Layer 2s: One of the impressive features of Ethereum is its adaptability. This year we can expect a mix of technical, economic, and community-led solutions to address the current layer 2 value imbalance.

That doesn't mean Ethereum is free from headwinds. For example, the much-hoped-for U.S. crypto regulation may not pass. Ethereum's technology may not be able to handle any surging stablecoin strain. That's why it's important that crypto investments only make up a small portion of your portfolio.

Right now, Ethereum is trading at over 40% down on its all-time high. It may fall further, but $2,800 could be a good entry point. The Ethereum winds all seem to be blowing in the right direction, and there are some solid reasons to think it might shine in 2026.

Emma Newbery has positions in Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool recommends BlackRock and Standard Chartered Plc. The Motley Fool has a disclosure policy.