Grayscale, a digital asset management company based in the US, analyzed that the value of Ether (ETH) could rise in the future with the move to Ethereum 2.0. Grayscale released its Valuing Ethereum report last week ahead of the resumption of Ethereum investment fund sales at 8th local time.
In the report, the value of Ether (ETH) was assessed in three main areas: currency, supplies and assets to create interest. The report predicted that the value of Ether as an asset for consumables and interest creation could increase, especially with the move to Ethereum 2.0.
(Here, “ether” refers to a token issued on the Ethereum network, and “ethereum” refers to the Ethereum blockchain network).
Grayscale explained the backstory of the Ethereum valuation report: "As activity on the Ethereum network grows, investor interest in investment projects and Ether (ETH) valuation is also growing". Earlier in August last year, Grayscale released its Bitcoin Valuation report.
“Ethereum and Bitcoin serve specialized functions on different fronts and play a complementary role. ··· While Bitcoin is preferred as a store of value in the digital ecosystem, Ethereum is emerging as a cutting edge financial infrastructure. Daily trading brings in $ 12 billion. volume".
Ether as money
Grayscale has assessed that Ether is playing the role of "digital currency of a new era" in many ways. Representative examples are used as collateral for loans in DeFi services (decentralized financing) or as payments for Ethereum-based service applications.
Grayscale said, “The use of Ether as collateral in the DeFi ecosystem will continue to expand,” but also analyzed that competitive funds are popping up one after the other, threatening Ether's position. Wrapped Bitcoin (wBTC), USD Coin (USDC), and Tether (USDT) are increasingly used to provide financial services on the Ethereum network.
Ether as a consumable
Grayscale predicted that with the move to Ethereum 2.0, the nature of ether will gradually move closer to consumables such as fuel rather than currency. This is the biggest difference between Ether and Bitcoin, which is called "digital gold" and acts as a store of value.
Specifically, Grayscale predicted that if the amount of Ether burned after being used as a payment due to increased transaction activity on the Ethereum network in the future exceeds the new release rate, it is a deflationary phenomenon that increases the value of Ether based on supply and the demand principle could happen.
Grayscale explained that it is possible to analyze the demand for Ether as a consumable based on the total daily transaction fees on the Ethereum network. Grayscale said: “The total transaction fee per month in January 2021 was five times higher than in January 2018, the previous peak,” and said: “The price of ether at the same time also rose to the same level as new record. in 2018 ".
You also need to look at the “price / earnings ratio” obtained by dividing the ether price (P) by the total amount of ether paid as a transaction fee (S). According to Grayscale, a low index means that the Ethereum network is generating higher returns compared to the price of Ether. In other words, the lower this index, the more underestimated the value of Ether and the likelihood that it will grow in the future.
Ether as an interest-bearing asset
Grayscale predicts that Ethereum holders can generate interest through betting, and that the move to Proof of Stake via Ethereum 2.0 will turn Ether into a `` productive commodity.
Grayscale explained that "just as securities provide rights to future cash flows, in Ethereum 2.0, ether can also be wagered to secure future rights to liquidity".
Grayscale argued that the price of Ether would rise as more people own Ether in order to make money staking. This is because as the amount of Ether bound by betting increases, the circulation decreases and, accordingly, the amount of Ether supplied as consumables decreases.
The key is whether the transition to Ethereum 2.0 is successful.
However, the diagram drawn by Grayscale suggests that EIP-1559, which controls the supply by burning some of the ether used as transaction fees, has indeed been implemented. It remains unclear if the Ethereum developer community will accept the EIP-1559.
“The Ethereum community has high hopes for the tremendous activity on the Ethereum network, the economic improvement of Ether tokens, and the promise of increased scalability. The data shows that the price of Ether changes in proportion to the level of activity on the network. As mentioned, various indicators point to highs, which is a positive sign for investors".