A former trade manager at Galaxy Digital and Genesis Global thinks leading altcoin Ethereum will be the ‘primary ramp to crypto’ and explains 3 reasons.
“The most important event after the invention of Bitcoin and Ethereum”
Despite months of dampness in the crypto markets, it’s been a historic year for the Ethereum network. As you follow on Kriptokoin.com, Ethereum has made its biggest upgrade, Merge. Thus, it has transitioned from an energy-intensive Proof-of-Work (PoW) to Proof-of-Stake (PoS).
Ben Edgington of ConsenSys says it’s the ‘most ambitious thing’ the industry has ever seen. According to Edgington, Merge is the most important event in crypto history after the invention of Bitcoin and Ethereum. Edgington, who has been working on the upgrade for the past 4.5 years, describes the Merge as ‘replacing the engine mid-flight’. Because, Merge describes it as ‘fundamentally reconfiguring a blockchain worth hundreds of billions of dollars.
Despite the success of the upgrade, the markets cannot recover from the tough macro conditions. Prices still keep falling. According to Messari, Bitcoin and Ethereum dropped over 70% from ATH levels on Wednesday. Joshua Lim, a former commerce executive at both Genesis and Galaxy Digital, predicts Ethereum will be the ‘primary launchpad for crypto’ in the future.
Leading altcoin challenges leading crypto
Joshua Lim says Ethereum will challenge Bitcoin as ‘crypto’s dominant reserve and fund asset’. Bitcoin is both the oldest crypto and leads the trillion dollar industry by market cap. Bitcoin’s value support is relatively simple: its limited supply of 21 million. However, amid high inflation and an impending recession, the price of Bitcoin continued to decline. Lim says the first wave of institutional and mainstream interest in crypto came via Bitcoin. However, he notes that the latter will be via the leading altcoin Ethereum.
Paul Tudor Jones, one of Wall Street’s most successful hedge fund managers in 2020, revealed that Bitcoin is in his portfolio as central banks start printing more money. Large public companies such as MicroStrategy and Tesla have also started taking Bitcoin for their reserves. MicroStrategy, a software company founded by Michael Saylor, purchased $425 million worth of BTC in August and September of 2020. Thereafter, Morgan Stanley became the first major US bank to offer BTC funds to certain wealthy clients.
“The next logical stop for Bitcoin is to replace gold as a non-dominant store of value,” Saylor said at MarketWatch’s Festival of Best New Ideas. Joshua Lim refers to the Fed’s focus on fighting inflation. As such, he says Ethereum won’t exceed Bitcoin’s market cap for at least ‘a few more quarters’. In this context, he makes the following statement:
Will there be a return? Another major macro rally for risk assets is needed to consolidate the institutional preference for Ethereum. We’ve seen massive inflows into Ethereum as a funding asset before. In the 2017 cycle, individual investors piled on Ethereum as a ramp to ICOs. In this cycle, institutional investors have adopted Ethereum as the base layer for most of DeFi and stablecoin activity. Therefore, a large number of fresh capital has entered the asset class via Ethereum over Bitcoin.
ETH and ESG narrative as a deflationary entity
“The prospect of Ether becoming deflationary under PoS has made it marginally more attractive to investors,” says Joshua Lim. Merge not only drastically reduced Ethereum’s energy use, but also changed the economy of its network.
According to Citigroup, the move to PoS has reduced Ethereum’s issuance by 4.2% per year, making it a deflationary asset. Thus, it improved its status as a store of value. In a note to clients in August, the firm described the move to PoS as a way to make Ethereum a ‘returning asset’ with ‘cash flows’.
It is possible that the ESG narrative will also attract institutional capital to Ethereum. Bitcoin, trading under a PoW model, consumes approximately 150 terawatt-hours of electricity per year, according to the Cambridge Bitcoin Electricity Consumption Index. That’s more than all of Argentina, which has a population of 45 million. Lim said, “Ethereum can achieve a 99.95% improvement in energy efficiency under PoS. “This is an easy ESG narrative that allocators can point to.”
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