After peaking out at $4,500, the price of Ether has fallen dramatically, and many believe that the price could continue to fall further. Nevertheless, developments in the Ethereum ecosystem and the broader macroeconomic environment have provided reasons as to why the price of Ether ought to appreciate dramatically over the next few months.
1. Corporations are constrained by ESG mandates
Whether one agrees with the arguments made against Bitcoin’s energy usage or not, many corporations who don’t understand the nuance of the debate will look to their ESG mandates for reassurance in terms of capital allocation.
Despite the fact that 14m ETH remains yet to be unlocked until after the Shanghai hard fork, Ethereum’s tokenomics will be seen as extremely favourable by companies and institutions particularly those who are looking to earn yield on their assets or who wish to make use of DeFi.
All around the world, companies and institutions are constrained by mandates to invest in companies that have high ESG scores, thanks to the evermore politicised nature of investing in the last decade – the entire ESG market is expected to eclipse $30 trillion in size by 2030; companies and blockchains that aren’t hot on their ESG credentials will find it much harder to raise capital from university endowments, pension funds, and the like.
2. Ethereum’s issuance dramatically reduced
After EIP-1559 and the merge, Ethereum’s inflation has been dramatically cut, and the current inflation rate for ETH currently stands at less than 0.7% per year – this is significantly less than Bitcoin’s current inflation rate, which currently stands at 1.8%.
During times of high network congestion, more ETH is burned and the the annualised ETH issuance actually becomes deflationary.
Anyone complaining about ETH not pumping post merge has ZERO understanding of markets. Markets are FORWARD looking, so they price in expectations IN ADVANCE
Ethereum, 1 month post Merge:
— Mario Nawfal (@MarioNawfal) October 17, 2022
There were many who were hoping that the dramatic fall in ETH’s issuance ought to have an almost-immediate effect on the price, but these things are always delayed, particularly with the concerns about the dramatic amount of Ethereum that will be unlocked after the Shanghai hard fork in 2023.
3. More dApps launching all the time on Ethereum
The most important catalyst for the long term sustainability of Turing Complete layer ones is the extent to which applications launch on top of them.
The Ethereum blockchain has far more dApps than any other, and these dApps require ETH to be spent (as gas fees) in order to use them. In this way, the more activity on the Ethereum blockchain creates an asset that becomes scarcer over time, particularly after EIP-1559.
Not only does Ethereum have more dApps than any other chain, it has far more users and far more developers working on it. There are far more DAOs on Ethereum, and all other Turing complete blockchains that are being launched require bridges to ETH in order to gain liquidity, which only expands Ethereum’s network as it builds a roster of layer twos and sidechains.
How high could ETH go?
Investors and speculators such as Ivan Liljeqvist believe that it is almost inevitable that the Ethereum price will continue to appreciate in such a context over the next few years, and that it will one day flip Bitcoin.
Whilst Bitcoin excels in its use case as a store of value, “hodling” is the main utility that is has, and this is significantly less important than the plethora of other activities that companies and programmable blockchains seek to capitalise on.
In traditional markets, for example, gold and government debt as stores of value are both far smaller in market cap than the collective value of all the world’s stock markets and derivatives.
Ethereum must contend with competition, and although projects such as Polygon help Ethereum to scale, they also fracture Ethereum’s liquidity and compete for its userbase. Fortunately, will stable tokenomics and a solid roadmap, Ethereum ought to be able to continue to fight off the “ETH killers”, none of which have succeeded thus far.
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