In the crypto rallies of 2018 and 2021, Ethereum (CRYPT: ETH) began to narrow the gap with Bitcoin (CRYPTO: BTC) in the crypto market domain. Talk of “flipping” – the point where Ethereum surpasses Bitcoin – was common.

But last year’s demonstration was different. Bitcoin soared and the gap between cryptocurrencies grew. At one point, Bitcoin accounted for more than 60% of the crypto market, while Ethereum’s share fell to less than 8%. Institutional, corporate and government interest in Bitcoin increased its dominance and to some extent caused it to diverge from the rest of the market.

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However, as the narrative around Bitcoin as a form of digital gold loses its luster, the pendulum is swinging back towards Ethereum. It is the machine that feeds a large part of the decentralized financing and the stablecoin market, and its utility and strong track record are a powerful combination.

Ethereum was designed as a programmable cryptocurrency. He was the first to show up smart contractssmall pieces of self-executing code that live on the blockchain. Being first to market has advantages. Almost 60% of funds locked in decentralized finance are in the Ethereum ecosystem, according to DefiLlama.

However, there are also disadvantages. Ethereum is slower and less scalable than other newer blockchains. Had to do some major upgrades keeping the engine running. It also relies heavily on layer 2 blockchains, which process off-chain transactions, for efficiency. One analyst called these Layer 2 parasites, collecting a large portion of fees while sucking up the network’s processing power.

There are several potential drivers for Ethereum growth this year. Not only could we see a dramatic increase in usage, but the purchase of institutional and corporate Treasuries could increase.

Here are three major changes that could make this the year of Ethereum:

• Adoption: Stablecoin legislation and increased interest in real-world tokenization mean that the entire blockchain industry could be on the verge of significant change. Nasdaq has already submitted a proposal for tokenized security trading and a few months ago, Standard Chartered CEO Bill Winters said at a conference that all transactions would be settled on the blockchain.

• Bet: Ethereum is a stake crypto, meaning investors can earn rewards by locking in their holdings. However, most local Ethereum ETFs do not pay participation rewards. That looks set to change this year, especially BlackRock filed an SEC filing for a participating Ethereum ETF in December.

• Layer 2: One of the impressive features of Ethereum is its adaptability. This year we can expect a combination of technical, financial and community-led solutions to address the current Layer 2 value imbalance.

This is not to say that Ethereum is free of headwinds. For example, the long-awaited US crypto regulation may not happen. Ethereum technology may not be able to handle any growing stablecoin strains. That’s why it’s important that crypto investments only represent a small portion of your portfolio.

Ethereum is currently trading over 40% off its all-time high. It may drop further, but $2,800 could be a good entry point. All the winds for Ethereum seem to be blowing in the right direction and there are some solid reasons to think it could shine in 2026.

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Emma Newbery has positions in Ethereum. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool recommends BlackRock and Standard Chartered Plc. The Motley Fool has one disclosure policy.

Prediction: 2026 will be the year of Ethereum (ETH) was originally published by The Motley Fool