ETH The New Eldorado? Strategic Analysis and Price Prediction!
In January 2021, I created a LinkedIn survey as ETH reached the new all-time high record of $1,400. I wanted to face the community by predicting $3,000 for ETH by the end of February 2021. I have to admit that I did not give any argument and explanation of this number.
There is no doubt about the Altcoin rally post BITCOIN rise. The guess is how and why…
Why it’s easier to explain The When and for What value is another story… And I will put my prediction on the table for this. Please feel free to react, and agree to disagree!
Before considering any prediction of ETH price, it is useful to bring to the table a key question: Is ETH ready to rally? Definitely yes! And here’s why:
We are not in 2017 anymore. The ecosystem has changed:
Google search trends back in 2017- ICOs raised millions without products but instead, some pieces of paper (white paper and landing page). 90% of these projects were issuing their tokens on the Ethereum blockchain and creating the rise. Investors sent their money through smart contracts (with poor coding security) based on Ethereum protocol (ERC20). This explained the massive rise of ETH use in 2017, which explains why ETH reached $1,400 on the 13th of January.
But these projects could not deliver (some of the reasons: scams, amateur teams, etc.), and the token bought by investors was essentially used for short-term ROI in a context of a lot of bumps and dumps from ICO teams. So, this supply was not stable with a long-term vision about the prospects ETH. The moment that the market started in late January 2017, these ICO teams started dumping their tokens.
With a lot of supply and reduced demand, ETH collapsed to $91/unit. Inevitably… some people made money and had to flee their country to protect their millions. SEC is waiting for them like “death” and “taxes”.
As of January 2021, ETH broke the new all-time high value of $1,420+/unit, and this brings an important question: Could something similar to 2017 happen again? No, and for several reasons related to the supply and the nature of the token economy.
Demand will increase and the supply will decrease.
Buyers’ profile changed: In 2017, we had an ICO team and unexperimented retail investors with a pretty weak hand and no real appreciation of ETH’s vast potential. Today the ETH owners/buyers are deep-pocketed institutions consists of whales and fund managers (hedge funds).
A huge amount of ETH is held by Greyscale (a large asset management company that issues crypto-backed shares to institutional investors). Over the past year an explosion in the amount of ETH that has been demanded by their investors. Fund managers had to accumulate more ETH from the market to keep up with the demand. In May 2020: there were about 21 million in ETH in the greyscale funds. Today, itis over 3 billion dollars in each and over 285 million shares (Bloomberg: There’s growing conviction around Ethereum as an asset class).
While Bitcoin’s record-high grabs attention, its crypto compatriot Ethereum is continuing to broaden its appeal beyond the software programming crowd.
According to Michael Sonnenshein, managing director at Grayscale Investments LLC, the Ethereum blockchain, the most actively used in the world, and its Ether token are getting more attention, he said. “Over the course of 2020 we are seeing a new group of investors who are Ethereum first and in some cases Ethereum only,” Sonnenshein said in a phone interview. “There’s a growing conviction around Ethereum as an asset class.”
👀Let’s have a look at the staking volume:
Ethereum 2.0 Staking Analytics (..) shows a constant increase of ETH locked for staking. It reached $2M+ in December 2020 and will certainly break the $3M soon.
👀 A close-up on the owner distribution profiles shows that the number of whales’ wallets with more than 10k ETH increased, whereas those with less than 10k decreased.
The whales have been accumulating at the expense of the smaller investors. If you decide to sell your ETH, you have a great chance that this will be a whale that will buy it at your disadvantage.
The institutional accumulation through 2020 was great, but this is just the beginning. In January 2020, Mike Novogratz, the billionaire founder of the crypto merchant bank Galaxy Digital, commented about what he believed is the role of institutional investors in driving up the adoption of Bitcoin.
And Mike was right for BTC and ETHER. We got the network effect of financial institution adoption, and this is just the beginning. On January 25, his cryptocurrency investment firm Galaxy Digital plans new funds for Ethereum’s native coin, Ether.
On 8th Feb 2021, CME Group will be listing ETH future instruments. CME Futures instruments are something quite different. Because those going to trade these types of listed instruments are institutions with brokers, account at the CME. This gives them a further avenue to hedge positions they have in the stock market. Another tool for portfolio optimization!
The Media effect will create a catalyzer for the BITCOIN, ETH adoption. All the future events (Forks, halving, big upgrade, use cases, increasing token price, fund involvement…) will be covered by mainstream media and increase awareness.
95% of Defi exists on the ethereum blockchain, which means all that crypto has been locked over the ether. +20 billion dollars in ether has been taken off the market and locked into their protocols! This means less ETH available to sell in the market. Less supply with increasing demand is the economics 101 formula for a price increase.
Investors are more experienced, more educated, more analytical with the projects they invest in, and know exactly where to allocate their capital.
The total amount of ETH in the exchange wallet decreased: Ether held decrease at the exchanges and are self-custody in the private wallet and hard wallet (Ledger, Trezor, etc..). This could either mean that the ETH will be huddled for investment purposes, allocated to Defi protocol, or sent to the beacon chain contract.
Eth is becoming a scarcer asset in the open market...
🔸ETH is a utility token.
To use the ethereum blockchain, you have to pay fees in gas to do transaction (smart contract). The more transaction, the higher demand. For the record: In Ethereum, Gas is a measurement unit of computational effort that is needed to be paid to the Ethereum Client to commit the transaction to the blockchain network. The senders of the message/transactions pay this cost. At the very high level, gas is the number of instructions used to execute a transaction in the Ethereum Virtual Machine. Ethereum architecture ensures that an appropriate fee is being paid by transactions submitted to the network. By requiring that a transaction pays for each operation it performs, Ethereum ensures that the network doesn’t get misused.
- The total amount of transactions on the ethereum blockchain over the past year reached +1million transactions per day! (Source Glassnode)
January daily gas used on Ethereum (paid in eth) reached +90 Billions
This increased demand to settle transactions led to increased demand for ETH itself.
What’s driving this transactional demand?
- Number of use cases (project)
- Stablecoins: The ethereum has become the dominant settlement layer for most stablecoin transactions. PACS, USDC, SUSD, teethers USDT. In the past amount, we have seen a massive increase in the total amount of stablecoin issued on the ethereum network but also the transfer volume. Billions of transaction volume are being settled on the ethereum network. => This all means a huge demand to use the network and with it the demand for gas.
We will see an avalanche of stable coin issuance and demand on ethereum network in the coming months:
- Visa has partnered with the circle consortium to connect visas global payments network to USDC (Forbes visa partners with ethereum Digital-dollar startup that raised $271million = Visa payments network of 60 million merchants, processing trillions of dollars every year. A small fraction of merchants starts to use USDC for the transaction. This is billion of transactions volume and stable coin demand, and given that eth is the largest USDC settlement layer currently, that all means a massive amount of utility demand for ethereum.
- Nationally chartered banks can use stablecoins and blockchains to facilitate payments and other activities, the Office of the Controller of the Currency (OCC) said in an interpretive letter published Monday.
👉All this means is that banks can use public blockchain to validate, store, record and settle payment transactions as long as they’re compliant with existing laws.
Jeremy Alaire, CEO of Circle financial; interbank transfers are the lifeblood of commerce in us. By settling these transactions on-chain, banks can do quicker and more effectively than they can with traditional transfer methods. The value of interbank transfers is really high, and blockchain will considerably reduce the operation cost and involvement thanks to their characteristics: Fewer intermediaries, greater safety, high speed, low cost, and anonymity.
🔸The launch of Ethereum 2.0!
In a few words, here are the updates:
- We turn from Pow to PoS that brings a lot of use on gas.
- Transaction per volume increases considerably from 15 tps to 1000 tps. This will impact the gas transaction fees.
- We finally get more decentralized
- And new features: Sharding and Staking! (I will talk more on Ethereum 2.0 in another article)
👉 what we have to note here is that a massive amount of Eth is being locked into the Ethereum 2.0 staking: 2 Million ETH contracts staking rewards.
👉Those ETH are locked and out of circulation. Less circulation!
👉 EIP 1559:
EIP 1559 is a Ethereum Improvement Proposal submitted by Eric Conner (@econoar). I recommend reading this short (4-min) article from Eric about EIP 1559, as a precursor to this article.
Fixing the Ethereum Fee Market (EIP-1559)
The Ethereum fee market is extremely inefficeint and we can fix it.
EIP 1559 does two main things:
- Establishes “the market rate” for block inclusion
- Burns the majority of the ETH in the transaction fee
This change to Ethereum’s gas management has significant implications for the monetary system of Ethereum. It would alter ethereum’s current bid based transaction market for a set fee, the based fee. This base fee will be burned in the network, which of course, pulls eth out of supply. Fee burn may be enough to offset any of the effects of additional Eth protocol inflation. So, in the long run, you have zero Eth hitting the supply and only the market’s current supply.
Now, let’s talk about the price prediction!
My Eth price prediction for the end of February 2021:
Eth will break the $3,000 / unit as a peak and will resist the $2,500 plateau to finally reach around $12,000 in October or December 2021.
This is really optimistic but we have too many parameters (identified) that support this prediction.
⭐Increasing institutional demand
⭐Increasing whale demand reducing exchange balancing
⭐increasing ETH being locked in Defi
⭐Increasing stablecoin demand
⭐Increasing ETH locked in Beacon chain
⭐ EIP 1559: Ethereum’s gas management reducing the eth supply.
⭐ The mainstream news channel, trader analysis, famous investors (even those who were reluctant initially) making a lot of noise.
📌We cannot predict the “events” created by whales and some FOMO that will create some dumps, but the market is more mature, people more responsible, and the regulation will sooner or later do its job for the KYC (FIAT to Crypto transfer).
👉My last point, and not the less important: This is not too late! This is still early-stage technology that requires upgrades and adoptions. Everybody agrees today that this technology potential is huge and will change the finance ecosystem. But be aware of one thing. Banks want to keep the power…
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this article is solely the opinions of the writer who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies poses considerable risk of loss. The writer does not guarantee any particular outcome.