Can Etherium beat Bitcoin in terms of investment appeal?

Conclusion

Since the beginning of 2021, Ethereum has shown very active growth against the U.S. dollar. As of 2:15 p.m. Moscow time on January 27, ETH/USD was showing a 76% growth according to CEX.IO, while BTC/USD was showing a 9% growth at the same time. If we compare the two cryptocurrencies directly, the ETH/USD pair shows a 61% growth from the beginning of 2021 to January 27, 2021.

Such a discrepancy in the price dynamics between bitcoin and Ethereum eloquently indicates that the difference in the relative growth rates of the two cryptocurrencies, which was formed against the background of the rapid growth of BTC/USD in November – December 2020 and the much more modest growth of ETH/USD during the same period, maybe narrowing.

We also noted that as ETH/USD approached its historical maximum, margin trading volumes in the pair grew stronger than in BTC/USD. In December 2020, ETH/USD margin trading volumes were 3.8 times higher than in September and 2.3 times higher than in November.

Reasons for ETH/USD growth

In our opinion, there are two most obvious reasons for such a rapid growth of ETH/USD: the explosion of the decentralized finance market from the beginning of 2021 and the simultaneous transition of Ethereum to the Beacon chain. The rise of Defi increases the demand for Ethereum as a transaction platform, leading to higher transaction fees and higher rewards per block. And with the completion of Ethereum Phase 2.0, there will be a full transition to a new blockchain in which transaction processing will follow a consensus model based on share confirmation, meaning that the tokens themselves will serve as the means to obtain a reward per block.

It is safe to say that the anticipation of this event has already changed the model of Ethereum token value formation, as the ability to generate passive income from the Ethereum blockchain through stacking is a significant factor in the increased demand for this asset.

Prospects for Ethereum 2.0

 

The launch of Ethereum 2.0 or Serenity promises large-scale changes to the project at the protocol level. The introduction of sharding will help divide blockchain nodes into shards – groups combining multiple nodes – which will process a specific pool of transactions with consensus within the shards, thus solving the scaling problem that arises when consensus needs to be achieved between all the blockchain nodes.

Sharding is expected to increase Ethereum’s transaction processing capacity to 15,000 or more transactions per second, which would be enough for mass use of Ethereum as a payment platform alongside centralized payment systems like Visa and Mastercard.

This will certainly lower the average transaction fee on Ethereum 2.0, but with the potential for Ethereum 2.0 bandwidth growth, the per-block fee may even increase compared to the current PoW version of Ethereum.

Forecast

Analyse

Given the prerequisites for Ethereum’s development as a payment medium, we expect further growth of this asset in the medium to long term. Ethereum 2.0 Phase 0 was originally scheduled to end in 2020 and Phase 2 was scheduled to end in 2021. As a result, Phase 0 started on December 1, 2020, and the timeline for the end of Ethereum’s transition to the Beacon chain remains highly uncertain. Likely, it will not take place before the second half of 2022.

Nevertheless, we expect ETH/USD to grow steadily during 2021. We consider the main target for ETH/USD for 2021 to be 2.196 points. At the same time, we expect a correction movement to at least 891 points before continuing further growth.

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