Potential ETF Approval Is Not the Only Reason Ethereum (ETH) Bitcoin (BTC) Is Beating Rally: Bernstein

Ethereum (ETH), the world’s second-largest cryptocurrency, has surged 33% year-to-date, outperforming its larger rival Bitcoin (BTC). This rally is being driven by other catalysts. potential approval Broker Bernstein said this about cash exchange-traded funds (ETFs) in a research report on Monday:

First, the supply of Ether is deflationary and has not increased since the Ethereum blockchain. move The report adds that this fact is being underestimated for the September 2022 proof-of-stake consensus model.

The amount of ether locked is also an important factor. Bernstein noted that ETH held on exchanges has reached an all-time low of 11%, a sign that more cryptocurrencies are being locked up. ETH is locked in staking pools. Decentralized Finance (DeFi) smart contract And on and on Layer-2.

“As ETH transaction fees increase based on higher blockchain activity (more DeFi, NFTs, tokens), more ETH holders are incentivized to stake their ETH,” analysts Gautam Chhugani and Mahika Sapra wrote.

“And as financial smart contracts scale up on the Ethereum layer 2 network (Arbitrum, Optimism, and Polygon), more ETH finds itself locked up in smart contracts, leading to a reflective feedback loop of increased demand,” the authors wrote. I wrote it.

that much own layerETH (Re)Staker, the protocol used for Ethereum re-staking, has attracted more staking demand as it benefits from new tokens/services launched by Eigen.

Bernstein said that starting in early 2023, new layer 2 networks will bring scalability and lower fees to the Ethereum network through a revival of decentralized finance.

As token regulations become clearer, “application tokens such as DeFi tokens could potentially allow revenue sharing with token holders,” the report said, adding that “a healthy DeFi ecosystem will continue to drive higher activity and Ethereum fees.” “I will,” he added. You will earn points in ETH.

that much Uniswap The fee-switching proposal, which resulted in a 60% profit on the UNI governance token, is cited as an example of how “token economic design” can get better.

The final major catalyst is Denkun Upgrade Ethereum blockchain scheduled for March this year. The report added that after the upgrade, “ETH contributors expect Ethereum Layer 2 transaction costs to decrease by an additional 90% and the profitability of the Layer 2 network to improve.” This will reduce congestion on the mainnet and bring more volume to the ecosystem, he added.

Read more: Bernstein Says Ether Could Be the Next ‘Institutional Lover’