CoinEx: With Bullish Factors like Deflation and Futures, When will ETH hit $5,000?
As we enter the fourth quarter of 2021, all eyes have been set on the big news that SEC has approved the Bitcoin futures ETF, and few have noticed the surge of ETH since the end of September, which is comparable to that of BTC. According to data from Coinmarketcap, the BTC price soared from $41,034.54 on September 28 to $67,247.48 as of November 9, an increase of 64%. During the same period, ETH skyrocketed from $2,807.3 to $4791.07, a price surge of 70%.
Let’s make a bet. How long do think it takes for ETH to hit $5,000?
Crypto hedge fund manager Rahul Ray believes the market will see ETH surpass Bitcoin in terms of market cap before the middle of next year. This is indeed a bold statement considering that Ethereum is only valued at 44% of the BTC market cap. As of November 9, the market cap of Bitcoin and Ethereum are $1,278 billion and $566.9 billion, respectively, according to Coinmarketcap. Despite this, when it comes to the crypto industry, a place where miracles may happen at any moment, you do not have to trust all predictions, but you should at least be aware.
So what are the bullish factors of ETH that motivated Rahul Rai’s bold statement?
1) Micro Ether Futures to be launched soon
The Chicago Mercantile Exchange (CME) announced on the evening of November 2 that it will launch Micro Ether Futures (MET), which would start trading on December 6 if all goes according to the plan.
This is not CME’s first launch of Ethereum futures. What makes MET different? The biggest advantage of MET lies in its small-sized contracts, which make it more accessible to investors. The previous Ethereum futures contracts are sized at 50 ETH, whereas MET is sized at 0.1 ETH, which is 500 times less expensive. This means that investors can get MET contracts without incurring high margins.
Although MET features an extremely small contract size, MET investors can still benefit from CME’s efficient services, just like holders of regular Ethereum futures. In other words, with MET, investors can engage in more accurate price discovery concerning Ethereum futures. All in all, the launch of MET will lower the trading threshold and bring more active trading and more traders, which will surely make Ethereum more popular in the conventional mainstream investment market.
2) The EIP-1559 protocol deflates Ethereum
If MET’s launch only stimulates the short-term growth of Ethereum, then the EIP-1559 protocol represents a bullish factor for Ethereum in the long run. According to the Ethereum Explorer:
The Ethereum blockchain recorded new block rewards of 12,692 Ether on November 8, 2021. So, how many of these rewards were burned through the EIP-1559 protocol?
As of November 9, Ethereum has burned over 810,000 Ether, according to Ultrasound.money. The EIP-1559 protocol was activated on the evening of August 5. Based on this timeline, we can tell that Ethereum burns around 8,400 Ether on a daily average, which means that Ethereum’s daily burnt fees now stand at 66% of the daily block rewards, thereby reducing the network’s inflation rate of 4.2% to around 1.4%. We can find out more about the impact of the EIP-1559 protocol from this Daily Ether Burnt Chart:
From October 26 to now, over 10,000 Ether has been burned on most days. On some days, the network burned over 13,000 Ether. As its ecosystem continues to boom, the figure will only increase in the future, which means Ethereum will be significantly deflated. That will further push up the ETH price.
3) The Ethereum ecosystem thrives, with a higher TVL
TVL is one of the indicators of the diversity and prosperity of a public chain ecosystem. According to Defi Llama, the TVL of all public chains has reached $274.52 billion on November 9, while the TVL of Ethereum has hit $183.76 billion on the same day. The 67% market share fully demonstrates the prosperity of the Ethereum ecosystem. It also indicates that Ethereum remains the undisputed king of public chains. Meanwhile, as Ethereum pursues Layer 2 developments, great progress has been made in addressing the notorious network congestion and high transaction fees.
According to L2BEAT, a research website and data aggregator focusing on Ethereum Layer 2, Layer 2’s TVL surpassed $5 billion on November 9, 6.19 times higher than what it was two months ago.
The market expectation of Ethereum has surged thanks to multiple bullish factors, spanning the upcoming launch of MET, the Ethereum deflation powered by the EIP-1559 protocol, and the great progress of both Layer 2 and the Ethereum ecosystem. Even the latest weekly report of CME futures released by the US Commodity Futures Commission (CFTC) suggests that ETH traders have increased their long position holdings, which reflects the market optimism about the future of Ethereum.