Will Ethereum be able to bypass Bitcoin in terms of investment attractiveness?

Since the beginning of 2021, Ethereum has shown very strong growth against the US dollar. At 14 hours 15 minutes on January 27 Moscow time, the ETH / USD pair showed an increase of 76% according to the data of the CEX.IO exchange, while the BTC / USD pair at the same moment showed an increase of 9%. If we compare directly these two cryptocurrencies, then the ETH / USD pair shows an increase of 61% from the beginning of 2021 to January 27, 2021..

This uncorrelation in the price dynamics between Bitcoin and Ethereum eloquently indicates a possible reduction in the difference in the relative growth rates of the two cryptocurrencies, which was formed against the background of the rapid growth of BTC / USD in November. – December 2020 and significantly more modest growth in ETH / USD over the same period.

We also noted that as ETH / USD approached its all-time high, margin trading volumes in this pair grew more than in the BTC / USD pair. In December 2020, ETH / USD margin trading volumes exceeded September volumes by 3.8 times, and November – 2.3 times.

Reasons for the growth of ETH / USD

In our opinion, there are two most obvious reasons for such a rapid growth in ETH / USD: the rise of the decentralized finance market since the beginning of 2021 and the simultaneous transition of Ethereum to the Beacon chain. The rise of DeFi is driving the demand for Ethereum as a transaction platform, leading to higher transaction fees and higher block rewards. And since the end of Phase 2 of Ethereum 2.0, a full-fledged transition to a new blockchain will take place, in which transactions will be processed according to a consensus model based on proof of stake, that is, the tokens themselves will serve as a means of receiving a block reward. 

It is quite possible to say that the expectation of this event has already changed the model of the formation of the ether cost – Ethereum tokens – since the possibility of receiving passive income from the Ethereum blockchain using staking is a significant factor in increasing the demand for this asset.

Prospects for Ethereum 2.0

The launch of Ethereum 2.0 or Serenity promises large-scale changes to the project at the protocol level. Sharding implementation will help to divide blockchain nodes into shards – groups combining several nodes – which will process a certain pool of transactions with consensus inside shards, which will solve the scaling problem that arises when it is necessary to reach consensus between all the nodes of the blockchain.

Sharding is expected to increase Ethereum’s transaction processing capabilities to 15,000 or more transactions per second, which will be enough for the massive use of Ethereum as a payment platform along with centralized payment systems like Visa and Mastercard..

Will Ethereum be able to bypass Bitcoin in terms of investment attractiveness?

This will certainly lower the average transaction fees on Ethereum 2.0, but with the potential for increased throughput in Ethereum 2.0, block fees could even rise compared to the current PoW version of Ethereum..

Forecast

Taking into account the prerequisites for the development of Ethereum as a means of payment, we expect further growth of this asset in the medium and long term. The end of Phase 0 Ethereum 2.0 was originally scheduled for 2020, and the end of Phase 2 – in 2021. As a result, phase 0 started on December 1, 2020, and the timing of the completion of the transition of Ethereum to the Beacon chain remains very uncertain. It is highly likely that it will take place no earlier than the second half of 2022..

However, we expect ETH / USD to grow steadily over the course of 2021. We believe that the main target for ETH / USD for 2021 is 2.196 points. At the same time, we expect a correctional movement to at least 891 points before continuing further growth.

text: Yuri Mazur, Head of Data Analysis Department, CEX.IO Broker, photo: Shutterstock

Will Ethereum be able to bypass Bitcoin in terms of investment attractiveness?

Will Ethereum be able to bypass Bitcoin in terms of investment attractiveness?

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