Is It Ethereum's Turn to Rally? 3 Reasons This Leading Crypto Could Be About to Climb Even Higher.

Key Points

• Ethereum was falling sharply in the first half of the year.

• It's now climbing rapidly.

• There are solid reasons to suspect that the climb will continue for a good while.

• 10 stocks we like better than Ethereum ›

Through this past spring, Ethereum (CRYPTO: ETH), the second‑most valuable cryptocurrency, slogged along as investors fretted about scaling, regulation, and lackluster demand. Fast-forward to July, and the coin has roared back to life, forcing skeptics to ask whether the comeback has legs. It's up 56% during the past 30 days alone (as of July 28).

No crystal ball can promise where prices will stand tomorrow, but three forces are converging that make a fresh advance look plausible, so let's dive in and explore the prospects of Ethereum flying higher.

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1. Reversion to the mean

Markets rarely stay depressed forever, and Ethereum was a textbook case of an oversold crypto with persistently abysmal sentiment.

From January to mid-June, its price tumbled, at one point being down by more than 50% year to date. Even diehard evangelists were starting to publicly fold their positions after years of holding. By June 20, the amount of positive social chatter about the chain was at multiyear lows -- but the recovery was already quietly underway by then.

Meanwhile, the network kept adding roughly 1 million new wallets per week, evidence that adoption hadn't stalled. That disconnect didn't last too long. Ethereum has more than doubled since April, jumping from the low $1,800s to around $3,800 as of July 28. There's also still no evidence of froth that often caps bull cycles.

In other words, the crowd is now increasingly optimistic but not exuberant, which is a setup that can support further upside so long as macro winds stay calm.

Image source: Getty Images.

2. The Pectra update is working as intended

The second catalyst is that on May 7, Ethereum pushed the Prague‑Electra update, better known as Pectra. The update introduces higher validator staking limits, lighter wallets that feel more like regular apps and can operate smart contracts, and twice the data room for Layer 2s (L2s), which also helps with scaling the chain's throughput.

Furthermore, bigger validator limits let institutions compound staking rewards, and cheaper L2 roll‑ups translate into lower transaction fees for everyday users.

If activity rises because Ethereum is faster and less clunky, demand for the coin should increase. Bugs are always a risk after any upgrade, yet so far network stability looks solid. And that means the party for holders is likely to continue.

3. Capital is gushing in

Institutions are directing a firehose of cash toward exchange-traded funds (ETFs) that hold Ethereum, and it's having a big impact on the price.

In the week ended July 19, U.S.-based spot Ethereum funds absorbed nearly $2.2 billion, including an impressive single‑day haul of $726.7 million on July 16. Each new ETF share minted requires issuers to buy coins in the open market, shrinking supply and nudging prices higher.

Because institutions tend to build positions in stages, the first wave of buying is rarely the last. That steady purchasing activity is a structural tailwind Ethereum has never enjoyed at this scale until now.

Additionally, there are a handful of businesses that are seeking to become crypto treasuries that hold Ethereum as one of their main assets. These buyers are keen to issue new shares of their stock, as well as new debt, with the sole goal of buying and holding the coin. Though the wisdom of this approach in the long haul remains to be seen, for now these treasuries are price-insensitive buyers, and they're a big part of the reason Ethereum is climbing so stridently now in a way that it wasn't before. And, if past heydays are any indication, there will be a lot more well-heeled buyers of this type coming along before there's any kind of slowdown.

Taken together, a sentiment reset, a smoother and cheaper network, and significant inflows of capital from ETFs and treasurers tilt the odds toward more upside for Ethereum. Long‑term investors may look back on this summer as a moment when the chain's fundamentals finally started to really catch up with its promise.

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Alex Carchidi has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.