Ethereum Price Surge Raises Questions About Its Longevity and Fundamentals

Ethereum surged nearly 40% last week, boosted by a successful network upgrade and easing trade tensions. Analysts warn that this rally was driven more by crypto-native investors than ETFs, as Ethereum spot funds faced $55 million in outflows. While some predict a 20% chance of Ethereum hitting $4,000 by year-end, caution persists regarding macroeconomic risks and the need for stronger fundamentals.

Last week was quite significant for Ethereum, which surged nearly 40%, bouncing from about $1,800 to $2,500. This surge can be attributed to a successful network upgrade and some easing of global trade tensions. Analysts are expressing caution, however, noting that the sustainability of these gains relies on stronger underlying fundamentals.

A few political developments turned the tide for digital assets—specifically, U.S. President Donald Trump announced positive talks with China and mentioned limited trade agreements with the U.K. This created a more optimistic macro environment, leading to significant gains for traditional stocks. The Dow, S&P 500, and Nasdaq reached their best one-day performances in months, primarily driven by strength in tech and industrial sectors.

Nevertheless, the digital asset market struggled to maintain its momentum. Bitcoin, Ethereum, and Solana all faced declines shortly after this rally, sparking conversations among analysts regarding profit-taking after last week’s gains. James Toledano, COO at Unity Wallet, pointed out that while the recent rebound reflects renewed market optimism, it may not be entirely solid, suggesting that it’s based on sentiment rather than strong market fundamentals.

Interestingly, ETF flow data shows differing trends. Despite Bitcoin spot ETFs recording substantial net inflows of $600 million last week, Ethereum ETFs experienced outflows amounting to $55 million. Matteo Greco, a research analyst at Fineqia International, noted that this indicates crypto-native investors are more influential in this current rally than institutional inflows.

A pivotal factor in this renewed interest is Ethereum’s Pectra upgrade, which was successfully implemented on May 7. Analysts highlight this upgrade’s improvements in staking limits and wallet usability as key drivers of optimism surrounding Ethereum. According to Sean Dawson, Head of Research at Derive.xyz, the upgrade has reinforced confidence in Ethereum’s scalability and could encourage more institutional interest.

Derive’s volatility models now suggest a 20% chance Ethereum may exceed $4,000 by year-end, a significant jump from the previous week’s 9% prediction. They also imply that Ethereum might show greater price reactions compared to Bitcoin in the upcoming months. Yet, Toledano remains wary, stating that without ongoing institutional investments and clearer regulations, Ethereum might face some consolidation before reaching any new all-time highs.