Crypto Winter It May Be, But Ethereum Looks Like A Buy
The Winklevoss twins are cutting the staff at Gemini and say crypto winter is upon us. With the price of Ethereum down more than 60% from the recent high, it certainly looks like that is the case.
Our take, however, is that Ethereum is finally starting to look interesting again because it is trading at a very low level, above previous resistance, and all ahead of the next major upgrade.
Called “The Merge,” the next upgrade will merge the original Ethereum blockchain with the newer Beacon Chain to bring ETH 2.0 to life. At that time Ethereum will officially switch from proof-of-work to proof-of-stake and become what we view as a more viable platform for investment.
Once Ethereum goes POS, the miners will fade away in favor of stakeholders who finance the network and provide liquidity for transactions.
Crypto winter is not a new phenomenon. The cryptocurrency market has undergone multiple deep pullbacks, but the one that began in 2017/2018 stands out. The difference then was that China began a lockdown that is pushing cryptocurrency out of the country.
That lockdown shaved billions in market cap as investors flooded the exits and that is not what’s happening now. At that time, the market corrected more than 90% and we don’t see that happening now.
The market is sitting on a pretty firm support target now and that is still above the key support target near $1420. The $1420 target is coincident with the previous all-time high and should provide a solid bounce, if not a reversal, and it is only 70% below the recent highs. The last Cryptospring delivered a return of 4700%.
The Rebound In Ethereum Is Brewing
The rebound in Ethereum following the first crypto winter was driven by growing interest in the technology. That interest manifested itself after the market languished for a few years and included renewed consumer interest, acceptance by mainstream financial circles, and the rise of decentralized finance.
Decentralized finance, or Defi, is the next layer in the cryptocurrency onion and includes services like loans, insurance, and other financial transactions that require backing and/or liquidity. The switch to ETH 2.0 is itself a form of Defi because stakeholders will receive fees for their efforts.
The amount of Ether staked on The Beacon Chain has grown steadily since its launch in December 2020. The total value is now over 12.75 million ETH or just shy of $23 billion.
The total dollar value is down, of course, due to the decline in ETH value, but we see that issue correcting itself. When it does, the dollar value of The Beacon Chain will skyrocket due to the increased leverage and create a positive feedback loop for the market.
The Ethereum Merge…Should Happen Soon
The merging of Ethereum and ETH 2.0 should happen soon, but investors shouldn’t hold their breath. The upgrade has been on the schedule for years and pushed back multiple times.
The latest update, dated June 2, says to expect sometime in the 2nd half of the year and we are leaning toward the back end of that estimate. When it comes, there will be two main risks. The first is it won’t come; the upgrade could be pushed back again and again due to the complexity of the system.
The second is that it won’t work. If it doesn’t work, the upgrade could wipe billions in value out of existence, but we don’t think that will happen. More likely the upgrade will get deployed and we’ll be back to a single Ethereum network fairly soon.
After that, the next step is to deploy the shard-chain function that will allow off-chain transactions within the Ethereum framework. When that happens it will be off to the races for Ethereum’s price because all that Ethereum has to offer will at our fingertips.
