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 Text | Internal Reference Jun Ethereum, the world's second-largest cryptocurrency, rose less than 5% in 2019, and ETH's performance this year has been worse than Bitcoin's. Despite previous sell-offs, BTC has maintained its staggering 95% year-to-date gains. Given Ethereum’s successful implementation of its latest network upgrade, known as Istanbul, and the growing popularity of decentralized finance, would it be a viable strategy for investors to invest in ETH at this time? From a macro perspective, Ethereum’s recognition among financial institutions is clearly increasing. But what does this mean for the average ETH investor? ETH’s performance was mediocre from the beginning of the year to the end of the year Bitcoin remains the most widely used cryptocurrency in the world. It often serves as a benchmark for the broader crypto space, and its performance has been an important market focus since day one. In fact, the cryptocurrency market looks very different today than it did when Bitcoin debuted. The rapid growth of the crypto space has broadened its scope, leading to a growing appetite for altcoins such as ETH, XRP, and EOS. Despite the massive ETH rally that occurred in late 2017 and early 2018, the price of ETH has been significantly lower than that of BTC this year. Figure 1: Year-to-date performance of Ethereum and Bitcoin  Source: Tradingview While many factors may be attributable to ETH's underperformance, multi-layered analysis can provide us with a more comprehensive understanding of Ethereum and indicate whether Ethereum's price has the potential to be decisive in the long term. Ethereum’s network valuation In the Internet age, investors sometimes find it difficult to value companies in the new economy when trying to use traditional valuation methods. FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google) are a good example. Despite criticism, the most influential group of tech giants has been one of the key drivers of the stock market for quite some time. Similar to FAANG stocks, many believe that cryptocurrencies are also network value-driven assets, meaning the more people use it, the higher its value. There are over 81 million unique addresses across the Ethereum network, and this number has been growing steadily since early last year. Figure 2: Ethereum unique address growth chart  Source: Etherscan.io Since reaching 600,000 Ethereum addresses in June 2019, the number of active Ethereum addresses has remained stable at around 300,000. Similarly, after reaching 900,000 Bitcoin addresses at the end of June, the number of active Bitcoin addresses has fluctuated between 500,000 and 700,000 in the second half of this year. Figure 3: One-year trend chart of active addresses of Ethereum and Bitcoin  Source: Bitinfochart What drives Ethereum’s growth Another layer of assessment we can add to the Ethereum blockchain is the emergence of DeFi. Maker has been a leader in the Ethereum-based DeFi space, with its smart contract custody platform allowing users to stake, trade and borrow crypto assets. In November, MakerDAO's protocol upgrade created Multi-Parallel DAI (MCD), which accepts ETH as a parallel for DAI generation. Ethereum is the biggest pillar in the entire DeFi world. Data from DeFiPulse shows that DeFi has as much as 2.7 million Ethereum locked in the system, accounting for 2.5% of the total ETH supply. Maker alone has at least $325 million locked in DeFi, accounting for about half of the value locked in DeFi. The market seems to be buying into DeFi’s bright future. We believe Ethereum can benefit from the growth of DeFi in the long term, and we expect more and more high-value transactions to enter the Ethereum blockchain, which could be a potential positive for Ethereum price in the long term. Figure 4: Number of Ethereum transactions  Source: IntoTheBlock Figure 5: Total value locked in DeFi (USD)  Source: DeFi Pulse From a macro perspective, the birth of DeFi has also changed the market's expectations for Ethereum, from a practical token to more of a high-value transaction settlement application. Additionally, while Bitcoin has always been considered a store of value, DeFi could also pave the way for Ethereum to strengthen its store-of-value properties. We expect this shift to become more pronounced in 2020 as the DeFi market rapidly expands. Business participation wins the future Increased corporate interest could be another fundamental factor that could influence the future development of Ethereum, especially in the banking industry. Earlier this month, banking giant Standard Chartered announced its participation in the Enterprise Ethereum Alliance. The European Economic Area (EEA) claims that it is an organization dedicated to developing open, decentralized networking and blockchain specifications for businesses and consumers around the world. Other large multinational banks such as JP Morgan, ING, Citibank and BBVA are already members of the EEA. While this may not be Standard Chartered’s first blockchain investment, as the bank also has a strategic partnership with Ripple, particularly in payments, joining the EEA not only signals the bank’s desire to further adopt blockchain technology, but may also focus on Ethereum or even ETH. Although StanChart does not have a timeline for any upcoming Ethereum projects, there is a lot of work underway in the EEA. One example is JP Morgan-backed Quorum, and we are likely to see more projects from key EEA members in the foreseeable future. EY also announced a major technological breakthrough that allows private transactions to be conducted on the public Ethereum blockchain at a lower cost. With this development, we can expect to see more businesses transferring ETH and other Ethereum-based tokens privately on public blockchains. in conclusion Ethereum’s price underperformance has become increasingly apparent since the second quarter of 2019. Market factors such as investment requirements, cost of reaching consensus, network speed, etc. may be the reasons for the price disadvantage of the Ethereum network and ETH. However, the rise of DeFi, growing enterprise interest, and network upgrades may help establish Ethereum as a key infrastructure in the digital financial world. The growing development could become a major driver of ETH price in the long term. Text | Internal Reference Jun Disclaimer: This information should not be relied upon for making investment decisions, nor should it be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risks and may result in the loss of your invested capital. You should therefore ensure that you fully understand the risks involved and invest with caution. "Chain Internal Reference" is only responsible for sharing information and does not constitute any investment advice. All investment behaviors of users have nothing to do with this site.           |
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