Raoul Pal, ex-CEO of Goldman Sachs, predicted a massive demand shock for Ethereum in an interview with Money Talks, calling it the “safest, easiest allocation” for investors. And these claims aren’t without merit.
The so-called “Ethereum killers” have managed to oust the second most capitalized cryptocurrency but haven’t undermined its status. Low bandwidth issues and, in certain periods, outrageous commissions were mirrored in Ethereum’s declining market share in the DeFi space, down to 50% by early May 2022.
However, the situation may change dramatically after the upcoming transition to Proof-of-Stake in September and the November launch of the Layer 2 solution based on ZK-Rollup, which Vitalik Buterin is relying on heavily. The reasons for this change may be brought about not only by abandoning unsustainable mining, which will remove institutional barriers, the so-called “triple halving,” that is, the transition to deflation, but also by neutralizing competitors’ advantage in bandwidth and, to some extent, in commissions, which is possible if rollups are further popularized.
No other networks can boast the same degree of decentralization as Ethereum. Their reliability is questionable, and such cases as the Solana failures come to mind. They’re inferior when it comes to the scale of the user and developer community, the support of venture capitalists, and the number of deployed apps. However, this doesn’t speak of a glittering future; for example, NEAR already has sharding, which Ethereum will get later, and sets the bar of usability for both dApp creators and ordinary users at a new level.
Ethereum vs. Bitcoin: Comparison in the Current Environment
Simply due to its architecture, Bitcoin can’t create smart contracts to build decentralized applications. The first cryptocurrency is destined to play the role of digital gold, a measure of value with limited issuance. Bitcoin can act as a payment medium — the Lightning Network got a boost after the legalization of BTC in El Salvador and the emergence of convenient wallets. However, you can’t build DeFi, blockchain games, or metaverses on the Bitcoin network. Its usage scenarios are limited. After switching to Proof-of-Stake, adding sharding, and improving rollups, Ethereum has every chance of becoming the basis for the Web3 economy, which it already dominates.
Prospects for a Massive Demand Shock for Ethereum
Ethereum’s bright prospects won’t necessarily lead to a sustained wave of demand once the Proof-of-Stake transition is confirmed, scheduled for September 16. We should consider the high correlation between both the crypto and stock markets. The latter, in turn, remains hostage to the Fed, which will continue raising its key rate until the end of the year as part of its fight against inflation. The signals of postponing the end of the policy tightening cycle to a more extended period or its more aggressive nature compared to expectations, coupled with a slowdown in economic activity, may lead to a new wave of selling risky assets, possibly forcing major players to delay investments in Ethereum.
