Key catalysts driving the comeback of cryptocurrencies

adminAugust 16, 2024

Market research firm and analyst DeFi Ignas recently provided a detailed analysis of the current bearish and bullish conditions for the leading altcoin, Ethereum (ETH), in a report that provides valuable insight into the cryptocurrency’s prospects.

Factors Behind Ethereum’s Underperformance

Ethereum has struggled to keep pace with its crypto peers over the past two years, falling 47%. Bitcoin (BTC) has underperformed Solana (SOL) by 6.8x since the market lows in early 2023.

According to According to Ignace, the reasons for this underperformance are debatable, but a few key factors stand out: First, the “digital gold” narrative surrounding Bitcoin is easier for new retail users and institutions to understand than the more complex narrative of Ethereum.

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Additionally, Solana is gaining importance as it is catching up with, and sometimes surpassing, Ethereum in terms of number of active users. Trading volume, Mindshare is putting pressure on leading smart contract platforms.

“Solana is a riskier (low market cap) bet on smart contract adoption, while Ethereum is stuck in between,” Ignas explains. “Ethereum’s modular approach with layer-2 solutions has led to fragmented liquidity and a more complex user experience.”

However, the researcher remains bullish on Ethereum’s long-term potential, citing several compelling reasons to keep an eye on it.

Network Effects and Real-World Use Cases

Efficient and deflationary network: If Ethereum’s gas price remains around 20 Gwei, the network will be considered deflationary and scalable, making it an attractive and efficient option for users.
Decentralization and security: Ethereum’s decentralization and security have earned the trust of major institutions including BlackRock, PayPal, JPMorgan, and Santander, who are testing blockchain payments and tokenization on the platform.
Mature DeFi Ecosystem: Ignas claims that Ethereum and its Layer-2 solutions boast the “most mature decentralized finance (DeFi) ecosystem” in the crypto space, with significant combined Total Value Locked (TVL) and trading volume, attracting more users and driving up gas fees and ETH burn.
Network Effects: Ethereum’s first-mover advantage and largest developer mindshare contribute to its network effects, solidifying its position as the leading smart contract platform.
Tokenization of Real-World Assets: Ethereum is emerging as the preferred chain for tokenizing real-world assets (RWAs), with 52% of all stablecoins and 73% of all U.S. Treasuries currently tokenized on the platform.

The overlooked catalyst?

Another catalyst that is rarely discussed but could have a significant impact, according to researchers, is the Pectra upgrade scheduled for Q1 2025.

This upgrade, which merges Prague (execution layer) and Electra (consensus layer) updates, promises to introduce several major improvements, including account abstraction (improving user experience). Staking Improvement and extensibility.

“The market is underestimating the importance of the Pectra upgrade,” Ignas said. “Features like account abstraction, improved staking, and improved scalability could be game-changers for Ethereum adoption and usability.”

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At the time of writing, it is trading at $2,670, but VanEck’s ETH benchmark price prediction shows it could hit $11,800 by 2030. Bear-like Some say yes, Ignas points out, but it still represents a 4.4x increase, which is significantly higher than the 2.2x predicted by Solana over the same period.

Ultimately, the bull case for Ethereum looks increasingly compelling, with a robust ecosystem, growing institutional support, and upcoming technical upgrades, the researcher notes, even as the asset weathers short-term headwinds.