While ether has been lagging behind bitcoin, the second-largest crypto by market capitalization could hit a record high above $5,000 next year if its current demand-and-supply dynamics continue, according to blockchain analytics firm CryptoQuant.

Ether (ETHUSD) traded at around $3,922 late Friday, up 71.5% this year, according to Dow Jones Market Data. While ether's performance is still impressive compared to many traditional assets, it has significantly underperformed bitcoin, which has gained 142% year to date.

While bitcoin (BTCUSD) has refreshed its record highs and rose above $100,000 in recent weeks, ether still traded more than 19% below its record high of $4,865 hit in November 2021.

However, if ether's current demand-and-supply dynamics persist, the cryptocurrency could hit a record high and rise above $5,000 next year, according to the calculation by analysts at CryptoQuant.

Ether exchange-traded funds have seen 17 consecutive trading days of inflows, according to data from crypto analytics platform Coinglass and the Block.

As of Friday, ether ETFs hold a total of 3.5 million units of ether, a record high, according to data from CryptoQuant. That is up from 3.1 million when ether ETFs were launched in July, and up from a low of 2.72 million in September.

Meanwhile, even though the total supply of ether stands at its highest level since April 2023, the amount of ether burned through transaction fees has been on a uptrend since September, showing that the crypto's supply growth has been slowing, analysts at CryptoQuant wrote in a recent note.

Since an upgrade in 2021, Ethereum has implemented a mechanism to burn, or destroy, a portion of transaction fees on the network to control ether's supply.

For ether to see its next leg up, a key factor is increased regulatory clarity, particularly around the classification of staking, according to Youwei Yang, chief economist at BIT Mining. Ether staking refers to a process where holders lock up their ether to secure the Ethereum blockchain and obtain rewards.

Current ether ETFs do not stake the ether they invest in, which has been a concession by issuers due to the regulatory uncertainty around staking.

In June, the SEC sued Ethereum software provider Consensys, alleging that the company operated as an unregistered broker. The SEC alleged that Consensys has offered and sold unregistered securities on behalf of liquid staking-program providers Lido and Rocket Pool, which create and issue liquid staking tokens in exchange for staked assets. While staked tokens are typically locked up, liquid staking tokens can be bought and sold freely.

"With the upcoming return of a pro-crypto and less-regulatory Trump administration, there's optimism that clear guidance on crypto regulation, including Ethereum staking, will emerge after the inauguration. This could pave the way for institutions and traditional finance players to adopt Ethereum staking, boosting its long-term appeal as a yield-generating asset," Yang wrote in emailed comments to MarketWatch.