Sentiment towards Ethereum hasn’t been as strong as Bitcoin over the past couple of weeks. But in the long run, researchers expect ETH to perform particularly well in the next bullish cycle.
The optimism around Ethereum in the medium to long term stems from the potential fundamental catalysts that await in 2021.
Anthony Sassano, who leads marketing at Set Protocol, Ethereum has three “pillars of accumulation”. However, Ethereum currently only has one of three in trustless store of value (SoV).
When fees and staking are introduced, mainly through the ETH 2.0 network update, it could catalyze Ethereum further.
ETH 2.0 is the main theme of Ethereum in 2021
Since March, Ethereum’s price has jumped from $ 90 to $ 410. After a fourfold rise in price in eight months, fundamental factors show that it remains undervalued.
Despite its price hike since March, ETH has still dropped from $ 1,440 to $ 410 since its peak in 2018. However, the total frozen value (TVL) in decentralized finance (DeFI) has reached an all-time high.
DeFi’s explosive demand has caused the Ethereum blockchain network to crash at times. This has led to increased demand for ETH 2.0 and increased blockchain capacity.
If user activity at DeFi continues to increase, the appetite for ETH 2.0 would also increase in tandem. When ETH 2.0 is activated on Ethereum, it would lead to two of the remaining pillars of Ethereum. Sassano explained:
“The 3 pillars of ETH’s accrual value: Trustless SoV, EIP-1559 (fee burning), Staking. Which leads to Trustless economy (DeFi), deflationary ETH, in-protocol ETH yield.
We currently only have 1 in 3, but ETH has a market capitalization of $ 46 billion. Imagine when ETH is 3/3 “.
Ethereum is not undervalued in a technical sense, but in the sense that there are fundamental fundamental factors on the horizon that could increase its value.
Is the DeFi allure on the wane?
On October 26, the leading DeFi Harvest protocol suffered a flash loan exploit. After the high-profile exploit, some analysts said it could cause ETH to weaken in the short term.
Light, a pseudonymous cryptocurrency derivatives trader, She said:
“Based on the YAM analog, expect ETH to be weak for the next 24-48 hours due to the Harvest exploit and BTC to remain fairly stable.”
During the past month, there have been several major flash loan exploits in the DeFi market. Since flash loans are a feature, not a bug, there is no clear-cut short-term solution to the problem.
While the medium-term outlook for Ethereum and DeFi as a whole remains bright, in the short term there are concerns about the current state of the DeFi market.
The weekly price chart of Ethereum. Source: ETHUSD on TradingView.com