Grayscale, a digital asset management company in the United States, analyzed that the value of Ether (ETH) could increase in the future with the transition to Ethereum 2.0. Grayscale published its’Valuing Ethereum’ report last week ahead of the resumption of Ethereum investment trust sales on the 8th local time.
The report evaluated the value of Ether (ETH) in three main aspects: currency, consumables, and assets for generating interest. The report predicted that the value of Ether as an asset for consumables and interest creation could increase, especially with the transition to Ethereum 2.0.
(*Here,’Ether’ refers to a token issued on the Ethereum network, and’Ethereum’ refers to the Ethereum blockchain network.)
Grayscale explained the background of the Ethereum valuation report, “As activity on the Ethereum network increases, investors’ interest in investment cases and valuation of Ether (ETH) is also growing.” Earlier, Grayscale published its’Valuing Bitcoin’ report in August last year.
“Ethereum and Bitcoin play specialized functions on different fronts and play a complementary role. ··· While Bitcoin is preferred as a means of storing value in the digital ecosystem, Ethereum emerges as an advanced financial infrastructure. It produces 12 billion dollars in daily trading volume.”
Ether as money
Grayscale assessed that Ether is playing the role of’digital currency of the new era’ in various ways. Representative examples are used as collateral for loans in DeFi (decentralized finance) services or as fees for Ethereum-based service applications.
Grayscale said, “The use of Ether as a collateral in the DeFi ecosystem will continue to expand,” but also analyzed that competitive means are emerging one after another, threatening Ether’s position. Wrapped Bitcoin (wBTC), USD Coin (USDC), and Tether (USDT) are increasingly being used as collateral for financial services in the Ethereum network.
As shown in the table below, the market caps of WBTC, USDT and USDC are increasing rapidly.
Ether as a consumable commodity
Grayscale predicted that with the transition to Ethereum 2.0, the nature of Ether will gradually become closer to consumables such as fuel rather than currency. This is the biggest difference Ether has compared to Bitcoin, which is called’digital gold’ and acts as a means of storing value.
In particular, Grayscale predicted that if the amount of Ether burned after being used as a fee due to increased transaction activity on the Ethereum network in the future exceeds the new issuance rate, a deflationary phenomenon that increases the value of Ether depending on the supply and demand principle may occur. .
Grayscale explained that it was possible to analyze the demand for Ether as a consumable based on the total daily transaction fee on the Ethereum network. Grayscale said, “The total transaction fee for one month in January 2021 was five times that of January 2018, the previous peak,” and said, “The price of Ether at the same time also rose to the same level as the new record set in 2018.”
It is also necessary to look at the’P/S ratio’ obtained by dividing the Ether price (P) by the total amount of Ether paid as transaction fees (S). According to Grayscale, the low index means that the Ethereum network is generating higher returns compared to the price of Ether. In other words, the lower this index, the more undervalued Ether is, and there is a possibility that it will rise in the future.
Ether as an interest-bearing asset
Grayscale predicts that Ether holders can generate interest through staking, and that the switch to proof-of-stake through Ethereum 2.0 will transform Ether into a “productive commodity.
Grayscale explained that “just as securities provide rights for future cash flows, under Ethereum 2.0, Ether can also be staked for the purpose of securing future liquidity rights.” .
Grayscale argued that the price of Ether would go up as more people hold Ether for the purpose of earning money from staking. This is because, as the amount of Ether tied by staking increases, the amount of circulation decreases, and accordingly, the amount of Ether supplied as a consumable decreases.
The key is whether the transition to Ethereum 2.0 is successful
However, the blueprint drawn by Grayscale assumes that EIP-1559, which controls the amount of supply by burning a part of Ether used as transaction fees, is actually implemented. It remains unclear whether the Ethereum development community will adopt EIP-1559.
“The Ethereum community has great expectations regarding the tremendous amount of activity on the Ethereum network, the economic improvement of Ether tokens, and the promise of increased scalability. Data shows that Ether price moves in proportion to the amount of activity in the network. As mentioned, a variety of indicators are pointing to highs, which is a positive sign for investors.”
Grayscale announced that it will resume selling Ethereum investment trust products from the 8th local time. Grayscale previously suspended the sale of cryptocurrency investment trust products such as Bitcoin and Ethereum in December 2020.
Valuing Ethereum by Coindeskkorea Contact on Scribd
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