Which cryptocurrency will rise in 2021? What is the future of Ethereum? Is it a good investment?
Ethereum recorded a new all-time high in February, breaking the $2,000 barrier mark for the first time. Yes, that time Ethereum's investors and holders have benefited from the ETH price surge, but what's next?
At every asset's core lays supply and demand. The formula is simple:
Decreased supply + increased demand = increased price.
So what about Ethereum's supply and demand?
The variable x - Demand
⦁ In February 2021, the Chicago Mercantile Exchange, the largest derivatives exchange in the world, launched Ethereum futures, making Ethereum the second Commodity Futures Trading Commission-registered crypto commodity. But what is significant about it?
It is the first financially settled ether futures product that is also regulated in the U.S., meaning the expiry of any futures contracts doesn't warrant the transfer of 50 ETH to a U.S. buyer but rather an equivalent amount in dollars. Being financially settled, it is a feature that was in high demand from the CME's customers and is one of the factors supporting increased institutional interest in ether.
⦁ ETC Group recently managed to get Ethereum ETP on Deutsche Borse's Xetra marketplace, a major thing for Ethereum itself. It makes it available to those who do not wish to actually have to own and manage the coin, which often includes institutions, so it might help ETH get more exposure.
⦁ It is undeniable that Ethereum is home to the majority of decentralized finance activity, with $42.96 billion Total Defi locked. But here is another rising star in the Ethereum ecosystem - NFT, which exceeded $420 million with ~ 5.4 million in sales.
When the volume of NFT buyers and sellers increased dramatically in the fourth quarter of 2020, according to the "Non-Fungible Tokens 2020" report, ether's prices were also moving up quickly to above $1,000 from September's low around $312.
This year, Messari analyst Mason Nystrom expects the NFT market to surpass $1.3 billion. Since Ethereum has the largest NFT ecosystem, what should we expect from ether then?
The variable y - Supply
Ethereum's upgrade, known as EIP-1559 included in the London hard fork scheduled for July and part of a broader move toward Ethereum 2.0, will see the network's current transaction-fee system overhauled, with users sending a fee to the network itself instead of to miners.
These fees will then be burned, reducing the overall ether supply.
"If the demand to use Ethereum is high enough, then there would actually be more ETH being destroyed than is being created," says Buterin adding, "If Bitcoin and its fixed supply is sound money, then if you have a decreasing supply, does that make Ethereum ultrasound money?"
Ethereum's never-ending supply was the least attractive part about it, and now optimism is growing that the world's most-used blockchain will see a major shift in retail and institutional buying, triggering explosive growth in ETH price.
Now our equation is solved.
Of course, let's not forget that there are strong linkages between bitcoin and ether (that said, if an investor is bullish on Bitcoin, it's hard not to be bullish on Ethereum).
Of course, they don't trade in lockstep necessarily, as each has its own period of outperformance. However, they tend to trade together and it's unlikely one will do incredibly well while the other does incredibly bad.
According to data compiled by CoinDesk, the correlation between bitcoin and ether remains strong at 0.70, despite a drop from earlier last year. From this perspective, Ethereum looks set to catch up to Bitcoin.
So next Ethereum targets based on TA for me are 2300$, 2700$, 3100$. This is not financial advice.
In case you want to know more about Ethereum, you may check out my other answers:
Ethereum 2.0
Will Ethereum overtake Bitcoin?
Where is Ethereum going next?
What are your thoughts on ETH? Do you believe it can become the best-performing asset of this year? Let’s discuss this in the comments.
Thank you for the upvotes and see you around!