This article contains an explanation focusing on the impending “triple halving” for the Ethereum Network. This is a large part of why Coinbusters is so interested in Ethereum as a macro investment.
Recap on Ethereum
For those subscribed to our prime membership, you already know where we place Ethereum in out portfolios. Ethereum has been used as our crypto “risk hedge” for years, and continues to be a smart asset to take profits into. A risk hedge is simply an asset that will hopefully be lest volatile than the majority of your portfolio. In crypto, most assets are considered wildly more volatile than traditional markets. Ethereum however tends to move in price much less intensely than the rest of the crypto market. Traditional markets use bonds, and blue chip stocks/mutual funds for this purpose.
Ethereum has also traditionally outperformed Bitcoin over the past several years. This is why we tend to skip Bitcoin as our major holding and hold our long-term savings account crypto as Ethereum. Ethereum is the second largest crypto asset. Ethereum and its token Eth are the fuel for what is known as web3. Web3 is essentially the new internet, with crypto technology, decentralization and on chain voting. Rather than Amazon, Apple and other large companies owning the internet, Web3 brings the ownership to the community that participates by using/holding/validating on Ethereum.
Ethereum has the largest NFT liquidity of all chains by far. Bored Ape Yacht club and the like are dominantly focused on Ethereum. Ethereum has the most decentralized applications, the largest number of committed developers, and carries the highest value locked of all crypto related networks. Ethereum focuses largely on smart-contracts and has recently come under fire with its expensive fees and slow transactions.
EIP 1559
Last year EIP 1559 was introduced to Ethereum, an already strong investment on general long-term uptrend. EIP 1559 adds a “burning” feature to the Network [1]. When transactions take place, a portion of the overall transaction permanently burns ETH from the total supply. Less total supply, with equal demand drives price. As demand increases more fees are burned, this creates a beautiful, eventually deflationary drive for ETH. With less and less Ethereum available on the open market, the supply is steadily dwindling. Simply one catalyst could explode the price of Ethereum overnight. Since the liquidity is becoming so low, an increase in demand would heavily increase the price on the short-term.
Proof of Stake
Ethereum 2.0 is aiming to move to the proof of stake model. Currently Ethereum has a similar model to that of Bitcoin. Bitcoin and Ethereum use the proof of work mechanism which requires “work” from computers and large amounts of energy, computer hardware, and constant observation from professional miners. With a move to proof of stake the energy demands for Ethereum would drop energy useage by ~99% [2]. This will make Ethereum a dominant investment over Bitcoin if green energy continues to be pushed. Proof-of-stake also highly incentivizes holders to continue to hold. By not selling, holders will gain a yield between 5-10%. Gaining a yield over 100x larger than what the average savings account provides, on a generally appreciating asset, is a major win. This combined with the eventually deflationary burning mechanism will greatly reduce the available supply for trade. This means that each token bought will drive price exponentially relative to the past.
The Triple Halving
Current predictions place a reduction of available supply for Ethereum by -90%. This is equivalent to 3 Bitcoin halving cycles. Bitcoin halving occurs approximately every 4 years, this is 12 years of Bitcoin halving within 2 years. As the Ethereum ecosystem continues to grow, the ETH token becomes more and more valuable. Users need it to buy popular NFTs, chase yields on favored Defi protocols, and to verify secure financial transactions. Ethereum provides the opportunity for peer-to-peer transactions with no middleman, one of its greatest perks. Ethereum will also benefit from a great reduction in fee prices as this conversion to 2.0 rolls out.
The Ethereum chart above shows the Ethereum/Bitcoin ratio, one of my favorites. Looking at this chart you will notice that Ethereum has grown over two-fold in relation to Bitcoin. Imagine Bitcoin grows 100% in a year, your same dollars in Ethereum would be worth over 200% instead. This is our thesis on Ethereum, we explained this process over 7 months ago to our prime members. Please consider checking it out, for only 2.99$ a month, or 24$ a year you will receive exclusive access to our crypto market research analysis. Thank you so much for reading, please remember to do your own research, and stay safe in, and outside of the crypto market!
[1] https://decrypt.co/77511/how-will-eip-1559-ethereum-triple-halving-affect-eth-price
[2] https://www.technologyreview.com/2022/03/04/1046636/ethereum-blockchain-proof-of-stake/#:~:text=Sometime%20in%20the%20first%20half,reach%20100%2C000%20transactions%20per%20second.
