Reduced liquidity and reduced production will reduce the supply of Ethereum, while the demand from the market and large companies will increase.
Written by: Li Ke
The Twitter account @SquishChaos recently gained a reputation for boldly predicting that the price of Ethereum token ETH is expected to exceed $150,000 with the help of this bull market.
In fact, @SquishChaos’s real identity is a resident doctor named “Nikhil Shamapant” who graduated from Icahn School of Medicine at Mount Sinai in New York City. Of course, he is also a blockchain investor.
Nikhil Shamapant, Twitter @SquishChaos
In order to demonstrate his point of view, he wrote a 79-page long report , which analyzed in detail why he believes that the ETH price will reach 30,000-50,000 US dollars in 2023 under normal market conditions, and it is expected to exceed 150,000 under bull market conditions. US dollars. This long report has a large amount of information. Generally speaking, it elaborates on why Ethereum can reach 150,000 US dollars from four aspects:
- Pledge mining and DeFi reduce the liquidity of Ethereum.
- The demand for Ethereum from the market and large companies continues to increase
- Ethereum will experience three similar “halvings” in the next 12 months
- Ethereum is gradually being accepted by the general public
Let Lianwen take you to understand the logic behind this bold prediction.
Decreased liquidity
Pledge mining and DeFi reduce the liquidity of Ethereum. At present, pledged mining and DeFi have locked 12% of Ethereum in total. With the increase in revenue incentives, more and more Ethereum holders will pledge Ethereum or liquidity mining to obtain revenue, Nikhil Shamapant said , “This ratio may reach 30% in the future.”
Data shows that nearly 10 million Ethereum is locked
In the locked Ethereum, the main funds are concentrated in decentralized exchanges (DEX) and decentralized lending projects.
Most of the top 10 projects on Ethereum are decentralized exchanges and lending projects
Among the Ethereum decentralized exchanges, Uniswap, SushiSwap, 1inch, Balancer, Curve and other top exchanges attracted most of the funds.
Ethereum goes up to the central exchange (DEX) data
Among the lending projects on Ethereum, Compound, Maker, and Aave accounted for most of the market share.
Data on lending projects on Ethereum
Ethereum holders conduct liquidity mining on decentralized exchanges and lending platforms, and they will obtain considerable income while providing liquidity. The annualization generally reaches 25+%. The higher the income, the more people will be attracted. Choosing to pledge the Ethereum holdings will reduce the liquidity of Ethereum, reduce the pressure of selling, and provide a strong guarantee for the rise of the price of Ethereum.
Increased demand for Ethereum
Robinhood, a well-known stock trading platform in the United States, has begun to support 16 digital currency transactions including ETH. Tesla, Paypal, and Venmo announced that they have begun buying digital currencies. Some futures companies and fund companies have launched bitcoin futures or derivatives products, and soon these institutions will extend their services to Ethereum. At present, VISA has also begun to support the USD-anchored stable currency USDC transactions published on the Ethereum mainnet.
Visa announces support for trading of USD-pegged stablecoin USDC on Ethereum
In addition, the United States and Canada will usher in the Ethereum Index Fund ETF. On April 20th, three Ethereum Exchange Traded Funds (ETFs) approved by the Ontario Securities Commission (OSC) of Canada will be officially launched, bringing more than 10% to Ethereum. 100 million US dollars of capital flow, of which Canadian asset management company Purpose Investment, which manages more than 10 billion US dollars of assets, announced that the Purpose Ethereum ETF created by the company will directly invest in physically settled Ethereum to allow investors to participate in the Ethereum market. The company’s official website stated that this will be the world’s first Ether ETF that is settled in kind, and does not require a digital wallet. The company will use investors to purchase ETF funds to purchase real Ether and store it in an offline cold wallet.
Cryptocurrency ETFs mainly provide institutional investors with a compliant investment channel for investment, allowing institutional investors in the traditional financial market to participate.
Nikhil Shamapant believes that more and more companies are beginning to support and purchase digital currencies including Ethereum, which greatly increases the market’s demand for Ethereum. In the long run, these are beneficial to the increase in the price of ETH.
The “three halvings” are a stimulus factor for the rise in ETH prices
Several improvement mechanisms that will be implemented by Ethereum in the near future will achieve an effect similar to the three halvings of Bitcoin.
EIP1559 plan. The Ethereum London hard fork that will take place on June 14, 2021 will implement the EIP1559 plan, which introduces a deflation mechanism to Ethereum by modifying the gas fee structure.
The congestion problem of the Ethereum network has been around for a long time. As early as 2017, the popularity of crypto cats caused great congestion on the Ethereum network, and the gas fee price soared. Last year, due to the rise of liquidity mining and the popularity of the DeFi boom, the financial demand for transactions and lending on Ethereum surged, which also caused the gas fee to rise sharply and continue to hit new highs. High gas fees and a congested network increase transaction costs and limit the development of Ethereum ecological projects. At present, some Ethereum users have quietly turned to other cheaper public chains.
EIP1559 plans to split the Ethereum Gas fee into two parts: Basefee and Tips.
The basic fee (Basefee) pricing mechanism is changed from “auction type” to “market exchange rate” pricing mechanism. The base fee will be dynamically adjusted according to the current network usage rate and will be directly destroyed. The basic logic is that when the Ethereum network usage rate exceeds 50 %, the basic fee will increase; when the network usage rate is lower than 50%, the basic fee will decrease, and the basic fee will fluctuate within a small range.
In addition, the miner’s tips (Tips) still belong to the miners who packaged the transaction information. The direct destruction of the base gas fee (Basefee) has caused dissatisfaction among some miners because it harms the interests of the miners, but in the long run, the destruction of the base gas fee has introduced a deflation mechanism to Ethereum, effectively reducing the miners’ selling pressure.
Ethereum 2.0. Ethereum 2.0 is expected to be launched between October and November 2021, and Ethereum 2.0 will adopt the POS (Proof of Staking) mining mechanism. There are two main goals of Ethereum 2.0: one is to improve the overall performance and provide a more powerful infrastructure for the development of the application layer; the other is to optimize the token economic model. The newly issued Ethereum will rely on the pledged ETH, so that ETH has become an important economic resource in the ecology.
The PoS mechanism adopts the proof-of-stake mechanism of mortgage verification, which means that the running node needs to mortgage the Ethereum held. The more Ethereum is mortgaged, the node will get a greater possibility of income. On the one hand, the node may buy more from the market. On the other hand, after Ethereum is mortgaged, there will be less Ethereum in circulation in the market. Therefore, the POS mechanism will reduce the circulation of Ethereum in the market, which is equivalent to achieving a “halving” effect.
Ethereum will experience similar “three halvings” in the next 12 months
Nikhil Shamapant estimates that the current Ethereum selling pressure is about 22,300 per day. After the EIP1559 upgrade and before the implementation of Ethereum 2.0, the selling pressure will be reduced to 15,700 per day. After the EIP1559 and Ethereum 2.0 upgrades, the selling pressure will drop to 2600 pieces per day. From 22,300 to 2,600, a reduction of 90%. This result is calculated by the three-time halving formula, that is, 50% 50% 50% = 12.5%.
Gradually accepted by the general public
The intrinsic value of Ethereum, the explosive growth of the number of user addresses, huge transaction volume, lower fees, attractive Defi and pledge mining income, the currency supported by Ethereum, the large number of applications of NFT, are more than gold A more intuitive application scenario shows that Ethereum still has a lot of room for growth until it receives the same attention as Bitcoin. Because of DeFi, NFT, EIP1559, Ethereum 2.0, more and more people will know Ethereum. At present, the search volume of Ethereum on Google is still less than that of Bitcoin, and one day Ethereum will sit with Bitcoin.
Over time, the development trend of Ethereum and other digital currencies being widely accepted by users
All in all, in view of the low liquidity caused by DeFi and pledge mining, the increased demand for Ethereum by the market and large companies, the driving force of events such as EIP1559 and Ethereum 2.0, and the gradual acceptance of Ethereum by the general public, Nikhil Shamapant believes that: In 2023, the lowest price of Ethereum can reach 30,000-50,000 U.S. dollars. If the market continues to be good, it is entirely possible to break through 150,000 U.S. dollars.
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