BULLISH AND BEARISH CASE FOR ETHEREUM
When Ethereum was created in 2013, everyone thought that it was another cash-grabbing investment that wanted to replicate Bitcoin, but it turned out not to be the case.
BULLISH CASE FOR ETHEREUM
When Ethereum was created in 2013, everyone thought that it was another cash-grabbing investment that wanted to replicate Bitcoin, but it turned out not to be the case. Over the past nine years, it has grown by leaps and bounds. It sits at #2 in the crypto market ranking, and every new and innovative innovation in the past nine years has either happened on Ethereum or is happening on it. From DeFi to NFTs to gaming and the metaverse, every single one of them started on Ethereum, and Ethereum is still the leader by far. Now let's talk about each bullish metric in detail.
a.) DeFi - Decentralized finance (DeFi) offers financial instruments without relying on intermediaries such as brokerages, exchanges, or banks by using smart contracts on a blockchain. The most popular DeFi protocols are UNISWAP, AAVE, CURVE, and COMPOUND. All of them are built on the Ethereum blockchain. In DeFi, one needs to provide liquidity, and in return, they get yield on that and a share of network fees. Right now, the total value locked in DeFi sits at $39.6 billion and ETH protocols account for 60% of that TVL at around $23.6 billion. The top 5 DEFI protocols are all built on Ethereum, which shows how dominant ETH is in this space.
b.) NFTs - NFTs, or non-fungible tokens, are cryptographic assets on a blockchain with unique identification codes that distinguish them from each other. NFT mania started in 2021 when Beeple sold his Everyday Collection for $69 million. Top NFT collections are Bored Ape Yacht Club and Crypto Punk, and both of them are on Ethereum. The most popular NFT marketplace is OpenSea, and it was built on Ethereum, which shows that Ethereum also dominates this space. Right now, NFT trading volume on Ethereum accounts for 70% of all trading volume.
c.) Stablecoins - Stablecoins are cryptocurrencies where their value is pegged to a nation's currency, generally the US dollar. The most popular stablecoins are USDT, USDC, and BUSD. Stablecoins are very important as it helps people navigate market volatility. They are issued on a public blockchain, mainly Ethereum. Total stablecoins issued on public blockchains are worth $137.18 billion, out of which nearly $85 billion, or 62%, is issued on Ethereum.
d.) Gaming - This sector also gained a lot of traction during the bull market as a lot of people started playing games to earn their living. Axie Infinity and Gala Games are two popular gaming coins that are built on Ethereum. Just like every other innovation, Ethereum is king when it comes to gaming, too.
e.) Metaverse – It is described as persistent blockchain-based digital worlds, accessible by immersive technologies (such as augmented reality, virtual reality, and extended reality), and the Internet. The top two crypto metaverses are the Sandbox and Decentraland. Both of them are built on Ethereum.
f.) Developers – Developers are important for any blockchain as they help build new and innovative things. When it comes to developers, Ethereum is a leader in this area as well, with a total of over 4,000. This is the reason that every innovative thing is first built on Ethereum.
g.) Fees accumulated - In the last 365 days, the total fees earned on Ethereum are $4.2 billion, which is 30 times more than that of Bitcoin. This shows that despite having high fees, people are still using Ethereum.
h.) Revenue - A chain will be sustainable if it generates revenue, and Ethereum has done that too. In the past 365 days, it has generated revenue of $3.5 billion.
i.) Institutional interest – Right now the trending investment narrative is ESG which constitutes of Environemental, Social and Governance. The major criticism of Bitcoin is that it uses a lot of energy. Ethereum transitioned to Proof of stake last year and it dropped its energy consumption by 99.9%. Also you can stake your eth to earn around (6-8) % yield. This all comes along with the fact that post-merge ETH supply issuance dropped by 90%, and upon combining it with EIP-1559, it made ETH deflationary. This drove such strong institutional interest that Fidelity, the 3rd largest hedge fund with over $8 trillion in AUM, also started offering ethereum to its institutional clients.
j.) Layer 2 - A layer 2 is a separate blockchain that extends Ethereum and inherits the security guarantee of Ethereum. Because of network congestion, using Ethereum is a bit time-consuming and expensive. This is the reason Layer 2s are built to provide fast and instant transactions at a cost of a fraction of a penny. Top L2 on ethereum are Polygon, Arbitrum and Optimism which all have more than $1billion in TVL.
k.) Network adoption - Ethereum is growing faster than Bitcoin when it comes to network adoption. By the fifth year, ETH addresses were four times more than Bitcoin. This is the reason a lot of people think that flippening is inevitable and that Ethereum will flip Bitcoin in the market cap.
BEARISH CASE FOR ETHEREUM
a.) Monetary Policy - Since EIP-1559 Ethereum community has started a new narrative around Eth that it is ultra sound money. Eth has been deflationary for quite a few days after the merge, and this has made a lot of people bullish on Eth, including some institutions. But this is a bad thing for Eth in the long run, as people don’t like to spend deflationary tokens. If you want to know, look no further than Bitcoin, which started as a peer to peer payment network but, because of its limited supply and low inflation, has transitioned into a store of value. In the long run, Eth tokenomics will make it less usable, which will lead to less use of the Eth network, and this will kill the whole narrative of Ethereum. Apart from that, they have changed their monetary policy a few times, which is a bad thing for the decentralized protocol because its changes should be approved by the general public, not by a group of a few wealthy individuals.
b.)Consensus- Since its transition to "proof of stake," around 62% of mined blocks on Ethereum are OFAC compliant. This is a sign of worry because if the government blacklists some addresses, it will not be able to process their transactions on the Ethereum network. Also, most of the stablecoins on Ethereum are centralized, and since Ethereum has transitioned to POS, it is a security issue because these centralized players can force some consensus changes through voting
c.)Regulations - The CFTC chairman said that Bitcoin and Ethereum are commodities, but the SEC still says that only Bitcoin is a commodity. The SEC chairman also says that proof-of-stake cryptocurrencies are securities, and this is a bad sign for Ethereum as it recently transitioned to proof of stake.
d.)Competition - Ethereum is still the dominant layer 1, but its dominance is eroding slowly as a lot of new L1s are providing faster and cheaper transactions, which are not possible on the Ethereum blockchain. Furthermore, many L1s are EVM compatible; making it easier for Ethereum applications to transition to other layer 1 protocols. This will erode Ethereum's market dominance even further.
Ethereum was started to solve some real problems, and it has done an amazing job of serving that purpose, but there are still things to improve. I believe they will sort out a lot of issues over time, but they must remember that they can either be a world computer or censorship-resistant hard money. When it comes to becoming censorship-resistant money, Bitcoin is the top contender because of its fixed monetary policy and decentralization, so it will be better for Ethereum to focus only on becoming the world computer.