Ethereum price rallies above $3.1K after unexpected regulatory victory

ETH price hit $3,100, backed by a favorable court ruling and increased network activity.

Ether (ETH) price rose by 5.5% on May 17, nearing $3,100 for the first time in ten days. Analysts attributed this rally to a decrease in demand for fixed-income instruments following stagnant U.S. retail sales data in April. This data increased the market’s expectation of a potential interest rate cut by the U.S. Federal Reserve (Fed) to boost the economy.

Expansionary measures by the central bank are typically seen as bullish for risk-on markets, whether due to an increased monetary supply or reduced credit costs for businesses and individuals. Investors sought exposure to scarce assets, including cryptocurrencies, leading to gold reaching $2,410, just 0.8% below its all-time high.

A court ruling gave Ether investors a confidence boost

Ether’s surge was also driven by a U.S. Department of Justice (DoJ) indictment unsealed on May 15. The indictment accused two individuals of wire fraud and money laundering by manipulating the Ethereum blockchain. The document stated that “Ethereum is a decentralized blockchain… without the need for a trusted intermediary” and added, “No central actor runs the Ethereum Network.”

Additionally, the court noted that Ethereum smart contracts enable transactions without a trusted intermediary. These statements boosted Ether investors’ confidence, especially after the U.S. Securities and Exchange Commission issued a Wells notice to the trading platform Robinhood on May 4 over alleged securities violations related to crypto listings and custodian operations.

According to Orlando Cosme, founder and CEO of Lexproof, such a verdict contradicts regulators’ classification of ETH as a security “as there would be no management or entrepreneurial efforts of others.” While this analysis does not change the approval odds of U.S. spot Ethereum exchange-traded funds (ETFs), it certainly lifted investors’ spirits.

The U.S. SEC is expected to provide its final ruling on VanEck’s spot Ethereum ETF request on March 23 and rule on the conversion of Grayscale’s ETHE fund by June 18. Although analysts predict approval odds below 35%, the regulators’ case for classifying Ether as a security instrument has weakened, which might have contributed to the rally above $3,050 on May 17.

Solana co-founder Anatoly Yakovenko praised Ethereum’s network security, highlighting how coordinating “an invalid state transition or double spend attack” would be nearly impossible. In a May 17 post, Yakovenko added that layer-2 scaling reduced costs without compromising security due to the network’s large number of validators and operators.

In short, investors realized that whatever setbacks Ethereum faced, including high transaction fees and its lackluster efforts to increase scalability, were, in fact, decisions that prioritized security and decentralization. Meanwhile, competitors Solana (SOL) and BNB Chain (BNB) opted for solutions that allowed a higher processing capacity, regardless of the merits of increasing dependency on fewer entities.

Ethereum network’s dominance remains undisputed

Ethereum’s strength becomes evident when analyzing its dominance in decentralized applications (DApps) activity. The growth of layer-2 solutions such as Base, which quickly gained traction due to its low fees and integration with the U.S.’s largest crypto exchange, Coinbase, further reinforces Ethereum’s ability to become a global settlement layer.

Ethereum’s $181.5 billion DApps volume over 30 days is more than seven times larger than its direct competitor, BNB Chain. More importantly, this volume declined merely 3% compared to the previous month, while BNB Chain and Solana experienced 52% and 41% decreases in volume, respectively.

Related: U.S. Senate passes resolution overturning SEC crypto rule on banks

Analyzing unique active addresses engaging with DApps (UAW) yields similar results, as Ethereum gained 3% in 30 days while BNB Chain and Solana faced steep declines. Highlights from the Ethereum network include Balancer, which saw a 34% volume increase in 30 days, Morpho Optimizers, which gained 80%, and DODO, with a 61% volume boost.

In essence, even if the U.S. spot Ethereum ETF approval odds remain low, investors are realizing that the network’s dominance in the DApps ecosystem remains unaffected. This realization contributed to the ETH price gains on May 17.