Here's What Needs to Happen for Ethereum to Hit $5,000 This Year

With investors fixated on Ethereum's (CRYPTO: ETH) price near $2,100 and irritable about its prolonged period of underperformance relative to other major cryptocurrencies, it's no wonder that there are questions about what would need to happen for its price to grow by more than double, as many were expecting it to this year.

There are actually a few concrete things (and a couple of squishier ones) that would almost certainly be enough to drive the coin's price above the $5,000 mark, even if it might take significantly longer than what investors are hoping for. Here are a few things that would need to happen.

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Winning this key battleground segment would help

The Ethereum of today has a lot going for it. With a rich ecosystem of tokens hosted on its chain, it's the second-largest cryptocurrency by market cap for a reason at $250 billion. Still, its price is roughly 10% lower than it was three years ago, which suggests that surpassing $5,000 per token is not a guaranteed outcome, even for patient investors.

There's one emerging segment in the cryptocurrency sector where Ethereum has a real chance of securing a major victory that'd send its price upward, perhaps durably for many years to come. That segment can broadly be described as artificial intelligence (AI) on the blockchain, but it really has (at least) two separate groups of projects: AI infrastructure projects, and the AI agents that will supposedly be using that infrastructure themselves for the purpose of managing their resources and transacting with each other.

If Ethereum could use its massive population of blockchain developers and the substantial investment capital present on the chain, it could become the crypto sector's home for the AI segment, scoring a significant inflow of new investment dollars. That would send its price higher -- and given the hype about AI at the moment, it'd gain a prestigious distinction, too.

There are already a handful of AI project coins hosted on Ethereum with more than $1 billion in market cap, and many more with market caps in the hundreds of millions of dollars. That makes complete sense, as the chain's smart contract infrastructure is a critical component of how AI agents and their infrastructure are intended to interact.

While it's safe to say that Ethereum is an early leader in the AI space, it's also facing down a powerful competitor, Solana (CRYPTO: SOL), and it has a few disadvantages in the matchup. Ethereum's transactions cost roughly $1.65 each as of Feb. 26, and they take around 53 seconds to clear.

Solana's gas fees are lower, averaging just a penny or less for each, and its chain processes transactions much faster, at a few seconds per transaction. That makes it easier to launch AI agents on its chain, and it opens the door for those agents or their developers to perform far more transactions than what would be possible with Ethereum. There aren't any billion-dollar AI coins hosted on Solana as of yet, but that could change if Ethereum doesn't get its high fees and slow transactions under control soon.

Therefore, for its price to surpass $5,000, it's very likely that Ethereum will need to solve the long-standing technical issues that constrain its speed and resource efficiency. Given that those problems have been around for years now, and that the chain's leadership has not been able to deliver on its promises of making improvements, it makes sense for investors to be skeptical of that possibility.

Sentiment needs to improve, especially about leadership

The biggest thing that needs to change for Ethereum's price to fly is that sentiment among investors must improve. A lot of that sentiment is simply determined by short-term price action, which is not relevant to focus on as a criterion for investment. Still, solving or at least addressing deeper issues, like the chain's leadership, would go a long way toward restoring confidence.

The Ethereum Foundation, the nonprofit organization dedicated to fostering the health of the chain and its ecosystem, is currently working on that front by shaking up its management team. As of Feb. 25, the former executive director, Aya Miyaguchi, will become the organization's president. The foundation will also focus more on advancing the chain's technical advancement, and its relationship with its project ecosystem, by implementing further leadership changes. It's likely that more senior changes are on the way.

It's also likely that those changes will take quite some time to turn into actual advances that might push the coin's price higher. Assuming they eventually do, reaching $5,000 is on the table. Until then, investors should take care that this might be a tough investment to hold for as long as it might take to see a good return.

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.