Ethereum has gotten a lot of flak over the past couple of years, but I believe it has the potential to provide better gains than Bitcoin itself in the immediate future.
It has a smaller market cap and does not have as much global recognition as Bitcoin does, which I view as a growth potential aspect.
The current hot trend in the crypto space are DeFi project, and guess what? Almost all of these projects are built on top of Ethereum. There is a ton of money flowing into DeFi and as a consequence I believe that this will bring about a significant rise in the price of Ethereum itself.
Also on the roadmap is the release of Ethereum 2.0 which has been in the works for many months and is finally nearing completion.
What is Ethereum?
According to a thesis by Ryan Sean Adams and David Hoffman:
Ethereum is a foundation for building an alternative Internet-based financial system. This financial system has the capacity to be completely open and trustless. This new financial system needs a native money to operate. Financial applications in this new landscape need a trustless form of collateral for their operation, and the only truly trustless asset on Ethereum is Ether.
As a result of this demand, Ether has become an economic-trifecta; a “triple-point” asset, satisfying all the requirements that a new economy needs, all at once. As a result of this, Ether has become the best model for money that the world has come up with.
The thesis essentially states that ETH is 3 different types of assets at once:
- A capital asset (staked ETH)
- Consumable/transformable asset (consumed ETH/used for gas)
- Store-of-Value ETH or collateral ETH (ETH held as a SoV/ETH used in DeFi)
Second only to Bitcoin in Market Cap
Ethereum has been second only to Bitcoin in market cap for several years now. As of August 2020, Bitcoin’s market cap is still about five times higher than Ethereum’s.
However, Ethereum’s volume is rising faster relative to Bitcoin’s. When the ETH/BTC volume ratio rises, it indicates that traders are trading Ethereum more relative to Bitcoin and that’s a good proxy of interest.
With the recent hype surrounding various Open Finance protocols, ETH/BTC price ratio is up 112% since September 2019; from 0.0162 BTC to 0.0343 BTC. However, ETH/BTC is still down 78% from its all-time high of ~0.155 BTC in June 2017.
If the current push for DeFi doesn’t wane, I can see that price ratio possibly getting closer to its previous highs, meaning there is a potential to make more profit investing in Ethereum than there is investing in Bitcoin.
Hate from Bitcoin Maximalists
If you do any kind of reading or research about Ethereum, you’ll find a lot of criticism, normally coming from hardcore Bitcoin maximalists.
— Mike Dudas (@mdudas) August 10, 2020
The reality is that Ethereum is not a scam, of course. If you want to read more about the Ethereum journey and appreciate all the work that has gone into building this protocol, I recommend reading The Infinite Machine by Camila Russo.
One of the main arguments against Ethereum is the so-called pre-mine. Although it is true that a portion of the early eth coins were reserved for the founders, nowadays the distribution among big holders is almost the same as that of Bitcoin:
Bitcoin’s Top 10k Holders: 10.54M BTC (57.44%)
Ethereum’s Top 10k Holders: 57.2M ETH (56.70%)
It’s important to contrast this with other networks:
In XRP 16 addresses hold 55.2% of XRP.
In BCH 1100 addresses hold 56.8% of BCH
In BSV 1250 addresses hold 55.6% of BSV
In Litecoin 300 addresses hold 54.3% of LTC
In Tron 1031 addresses hold 51.1% of TRX.
It is very evident that Bitcoin and Ethereum are in a league of their own when it comes to equity of distribution. The concentration of holdings of the other networks mentioned above is reason enough not to invest in their tokens, but the same cannot be said for Ethereum, thus the premine argument does not hold water.
Moreover, the most influential person behind Ethereum, founder Vitalik Buterin, has proven to be very dedicated to the Ethereum cause and less pursuant of personal riches. He currently owns less than 0.9% of ETH and for every ETH he has sold, he has donated the equivalent to the ecosystem.
According to analysis of ETH movements, one can also see that there are significant transfers of USDC, USDT, DAI and Paxos from a handful of addresses into exchanges BEFORE large spikes in anti-ETH tweets (both spikes in volume and negative sentiment). As soon as the bad news is out and the price falls, they swoop in to buy big chunks of ETH at the lower price.
It’s hard to believe that there is something fishy going on behind the spreading of FUD as it usually comes from Bitcoin maximalists who have an otherwise very respectable position in the crypto community. But it is definitely something that makes me think that in the crypto space it is always very important to take any news with a pinch of salt.
Institutions are Pouring In
Institutions and other big players in the cryptocurrency space have been accumulating Ethereum for a while now, data shows.
Grayscale Investments, the investment arm of crypto conglomerate Digital Currency Group, has purchased approximately 756,540 ETH in 2020 — 40 percent of the cryptocurrency minted through mining this year thus far.
Researchers were also able to identify wallets associated with major players such as JPMorgan Chase, Reddit, IBM, Microsoft, Amazon and Walmart.
100% of these wallets are accumulating ETH.
Ethereum 2.0 and Proof-of-Stake
Ethereum will be moving towards a big change, from proof of work to proof of stake. While this change is definitely a risky decision, the general consensus is that it is the best long-term decision and will bring many much needed improvements to Ethereum. It will improve the transaction throughput which is essential if we expect a whole industry of other cryptocurrencies to be built on Ethereum, such as the current DeFi protocols.
Staking will also offer another opportunity to bring returns to people who are participating in the staking mechanism.
It has been predicted that it will offer a 17–20% yield for early phase 0 adopters, dropping in stages before finally leveling out at 4–6% once ETH 2.0 is fully rolled out and transactable.
How to Buy Ethereum
Ethereum is the second biggest crypto in market cap and is considered the silver to Bitcoin’s gold. You can easily buy it on practically all crypto exchanges, including the major ones that I have recommended before:
All of these exchanges above have fiat onramps, so you can deposit several fiat currencies (EUR, USD etc) and then buy Ethereum (ETH). Make sure you do buy the right currency (ETH) and not Ethereum Classic (ETC) which is a different project and does not have the same growth potential.
You can also use an exchange like Changelly if you already own other cryptos and want to convert them to ETH. You can use the widget below to calculate such conversions and proceed with a swap.
If you’re interested in earning interest on your crypto holdings, many Ethereum based tokens are ideal to get started. You can read more about the topic of interest accounts for crypto on my blog post on the subject.
What is your view on Ethereum? Do you agree that it is setting itself up for a big rally in the coming months?