Ethereum is booming with NFT rates, crypto investors are chasing “Metaverse money”

Ethereum (ETH-USD) set a new record high for another consecutive day on Thursday and carried at least two macro themes that are anchored in the cryptocurrency sector.

The second largest cryptocurrency traded above $ 4,600 before reducing those gains, but it posted record highs last week – thanks in part to the surge in popularity of non-fungible tokens (NFT) and decentralized finance projects (DeFi). In the past year, Ether has outperformed Bitcoin, gaining more than 1025%.

These factors have fueled the short-term demand for payment of transaction costs in the digital coin, as well as growing speculation about its value for the so-called metaverse. The latter evolution is approaching warp speed after Facebook (FB) renamed itself in an aggressive foray to latch onto the next phase of digital evolution.

Solana (SOL1-USD), another cryptocurrency similar to Ethereum, also jumped to new all-time highs on Wednesday, up almost 31% last week. Both moves follow an investment frenzy for NFTs or non-fungible tokens.

Ethers Blockchain: The Gas That Powers Crypto Transactions

According to Fundstrat Global Investment Advisors, ETH will have to gain 9% this week alone.

“Ethereum should rise to $ 4,951 with little to no resistance,” Fundstrat Global Investment Advisors wrote on Wednesday. Ether’s Relative Strength Index (RSI), the technical measure of buying dynamics, shows that the price has managed to rise without being noticeably overbought.

The story goes on

Everyone hears about Ethereum in a way that has never been done before due to NFTs. People are getting excited about NFTs. “David Hoffman, ‘Bankless’ podcast host

Ethers underlying blockchain, Ethereum, is the world’s most established decentralized blockchain protocol (or “Layer-1” in technical terms) for smart contracts in the world.

While not getting the same investor demand as Bitcoin (BTC-USD), ether often serves as the “next stop on the rabbit hole for digital assets,” according to Chris Matta, President of Digital Asset Manager, 3iQ Digital. His company has offered both a Canada-based Spot Bitcoin Exchange Traded Fund (ETF) and the ether equivalent for several years.

Unlike Bitcoin, which is primarily used as a store of value, the rise in the price of Ether is due to the growing demand for people using its blockchain for transactions. Like the fuel in a car, ether acts as the gas that powers transactions over its payment network.

The transaction cost (or gas fee) varies based on the size of a transaction and how congested the network remains at any given time.

Most of the DeFi protocols and NFTs are on the Ethereum blockchain. Together, these two emerging digital asset segments have created increasing demand for transactions or “block space” on Ethereum.

November has a Total Value Locked (TVL) of $ 219 billion in decentralized finance, or DeFi. During the same period, NFT trade amounted to $ 4.2 billion, according to DappRadar.

“The demand for block space has increased further and the transaction throughput could not be increased with this demand. You see gas prices soar as people struggle for block space. That actually leads to an increasing demand for ether, ”Matta told Yahoo Finance.

While this rising demand for ether is large in the short term, it also poses a long-term problem for the asset.

“Ethereum is struggling a bit with the amount of network activity at the moment. Gas fees can vary dramatically and there is now competition from other blockchains that offer lower transaction costs, ”said Gatta.

The standard gas fee for different DeFi protocols varies widely, but the crypto exchange currently charges average transactions between $ 111 and $ 170 per transaction.

Hands holding a tablet computer are pictured during a tour of the urban NFT LAB called “GAME OVER” by the artist group Die Dixons (alias XI DE SIGN) in Berlin, October 6, 2021. REUTERS / Annegret Hilse

Ethereum is “metaverse money”

Ethereum’s price is also due to the recent wave of investor interest in NFTs, which has caught the attention of both major U.S. consumer brands and pop culture icons.

“Everyone hears about Ethereum in a way that has never been done before because of NFTs. People are getting excited about NFTs, ”David Hoffman, an Ethereum cop and co-host of the crypto-focused podcast Bankless, told Yahoo Finance.

As one of the hotter frontiers within the crypto sector, NFTs serve as crypto-backed certificates of authenticity for a variety of digital goods, from art and music albums to collectibles and video game assets.

Lately, big brands have jumped into the market. This week, fast food giant Mcdonald’s (MCD) held a sweepstakes to give away NFTs of their McRib sandwiches, while Nike (NKE) applied for a patent signaling that digital versions of their sneakers and clothing would be released as NFTs bring.

For these brands, NFTs behave like “digital goods,” Hoffman explained, with most of them still being created on Ethereum as ERC-721 tokens on the blockchain.

And the frenzy accelerated this month thanks to the official rebranding of Facebook to Meta, which enables the company to invest in building the “Metaverse,” a more immersive version of the Internet.

NFTs will play a central role within the metaverse, said both Hoffman and Gatta. That means that ETH and other cryptocurrencies that are driving smart contract-based blockchains like Solana serve as the underlying base layer for investor speculation on the metaverse.

“Ethereum is metaverse infrastructure and ETH is metaverse money,” added Hoffman.

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.

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