Ethereum is a high-potential asset, but ETH remains hidden behind Bitcoin’s price increases. What to expect from the price of Vitalik Buterin’s crypto?
In the world of cryptocurrencies, Bitcoin is unquestionably the best-known name. However, there is another crypto that has gained notoriety in recent years and has proven to have revolutionary potential comparable to that of BTC: Ethereum.
Faced with the recent rise in the Bitcoin price, few have thought deeply about the possible consequences that this context could have on the entire decentralized finance and therefore on the ecosystem that revolves around Ethereum.
Ethereum appears to be the main alternative to Bitcoin, but current market dynamics and investor behavior are triggering a reflection: is it possible that Ethereum is undervalued? And what could be the factors that will contribute to its rise, perhaps also thanks to Bitcoin?
The role of Ethereum in the crypto world
Behind Ethereum, a widely debated model was developed called decentralized finance, which introduced a truly new way of thinking about finance, with all the discussions involved. Thanks to Ethereum, we talk about DeFi when we refer to the concept of smart contracts, DEX, non-fungible tokens ( NFT), and many other structures that in recent years have marked a turning point in the history of the global financial system, helping to fuel the capitalization of the decentralized sector. It is therefore indisputable that, in 2023, in addition to Bitcoin, there are other projects worthy of attention when it comes to cryptocurrencies, with Ethereum at the forefront.
Faced with the recent rise in the price of Bitcoin (BTC), the price of its "cousin" Ethereum (ETH) has remained slightly behind, suggesting that the price of the latter may have been partly underestimated by investors in the sector. Although it does not have a fundamentally intrinsic value as happens with stocks in traditional finance, it is also possible to refer in this case to the mathematics and sensitivity of the sentiment of investors in this market.
It is widely believed that the recent growing interest in BTC has arisen from a number of factors, including the weakening of the regional banking segment in the United States, the escalating conflict in Ukraine and the birth of conflicts in the Middle East. The main reason, however, remains the phenomenon of the halving of Bitcoin, which in itself should compress the supply of Bitcoin, arousing enthusiasm among investors and triggering a virtuous circle that leads to a progressive increase in demand.
Why be optimistic about Ethereum?
According to Alessandro Frizzoni, CTO and co-CEO of Cryptosmart, there are two fundamental elements to understanding the growth potential of Ethereum.
The first reason for optimism regarding Ethereum is linked to the approval of the ETF on this cryptocurrency by the US regulator, the SEC. While the focus has mostly been on the Bitcoin ETF, it is important to highlight that calls have also been made for a similar instrument on Ethereum.
The promoter of this initiative is Invesco, a giant manager with a portfolio of 1,600 billion, which has entered into a partnership with Galaxy, already involved in the presentation of an almost identical product linked to Bitcoin. This tool could trigger a significant capital flow towards the Ethereum ecosystem, a valuable contribution, especially in a context of relatively low volumes for ETH.
It is not the only product of this kind being evaluated: those of ARK Invest and 21Shares should also be mentioned, as well as the proposals made already in 2021 by VanEck. There is therefore a competition for the importance of the second spot product, while it should be noted that the one relating to Bitcoin has not yet obtained final approval.
The possible green light for a Bitcoin ETF could represent a crucial test for the approval of an Ethereum ETF, with potentially positive impacts. Despite operating with lower volumes than Bitcoin, Ethereum could benefit significantly from this approval, significantly influencing its market capitalization.
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Is Bitcoin Undervalued?
Interest in Ethereum was also rekindled by a significant drop in transaction fees on the network, which dropped to an average of $1.13 (the lowest since November 2022). This trend not only promises cost efficiency but also foreshadows a potential resurgence of utility and a subsequent rebound in the price of Ether.
Thanks to fundamental updates, in particular the implementation of Ethereum 2.0, with the transition fromProof of Work (PoW) to Proof of Stake (PoS), the energy consumption and improved network scalability. These advancements have played a key role in decreasing transaction fees.
The introduction of Ethereum Improvement Proposal 1559 (EIP-1559) has further transformed the fee landscape, establishing an algorithmic base fee that allows users to accurately predict transaction costs. This change made transaction fees more transparent and less prone to sudden spikes, contributing to Ethereum’s efficiency.
Ethereum’s cost efficiency goes beyond the numbers, with tangible effects on the utility of the network and its impact on the price of ETH, Ethereum’s native cryptocurrency. Reducing fees makes Ethereum more accessible, promoting increased utility through greater participation in the network. In times of low fees, increased activity is often observed, with increased usage of decentralized applications (dApps), decentralized finance (DeFi) transactions, and non-fungible tokens) trades (NFT).
The correlation between transaction costs and the price of Ethereum is not coincidental. Historically, when the grid becomes more cost-efficient, there is often a price rebound. This is due to the increase in utility that follows the reduction in fees, leading to an increase in demand for Ether and, consequently, an increase in its market value.
With the decline in fees, there has been a significant recovery in transactions of meme coin and other smaller, Ethereum-based cryptocurrencies. This increase in trading has played a crucial role in solidifying Ethereum’s value as the platform of choice for trading such tokens. A new phase of growth and prosperity is therefore emerging for Ethereum, which now presents itself as a network ready to fully exploit the new opportunities arising in the cryptocurrency market.
Is Ethereum really undervalued?
Ethereum has been criticized in the past for its lack of a similar mechanism due to scalability issues. However, it is important to note that in recent years, the upgrade from proof-of-work (PoW) to proof-of-stake (PoS) has revolutionized the Ethereum ecosystem. This update generated 680,455.31 ETH through the process of "burning" more 980,377.87 ETH, thus reducing the circulating supply of the token by 299,922.50 ETH. In a sense, this has had a deflationary impact on Ethereum, and if the recent enthusiasm for BTC is due to the halving phenomenon, many believe there may be room to expect a similar effect for Ethereum as well.
This may be the case particularly because so much of DeFi’s "operating" system, of all kinds, is based on Ethereum. If the decentralized machine were to gain notoriety and use again, the price of Ethereum could benefit, with an increase in demand for ETH.
Original article published on Money.it Italy 2023-10-25 16:33:00. Original title: Ethereum è sottovalutato? Ecco perché è destinato a salire
