I have been calling ETH bottomed in 2019 and it hit the bottom very well here as shown:
Results:
Now can Is it possible for Ethereum to surpass Bitcoin?
Yes, definitely. Why?
Because within the next 12 months, Ethereum will experience a Triple Halving.
A Triple Halving you say, what is that?
Strap yourselves in, because this is my most important post of the year.
Ethereum is currently clocking in at $1,850. The upcoming Triple Halving will lead to a severe illiquidity squeeze that sets the path to a price explosion to $10,000+
I also highly think the peak is by end of September 2021
The reasoning in the following 3 steps:
1. The Triple Halving
You all know about the Bitcoin Halving (Halving in the issuance of new supply), which has led to 100x 4 year bull cycles from bottom to top for Bitcoin every single time so far.
"It is all due to Halving" McAfee.
R.I.P
Now, Ethereum will undergo a Triple Halving, which is 50% * 50% * 50% = 12.5%, a 87.5% reduction in issuance equivalent to 3 consecutive Bitcoin halving events.
On August 4th, EIP-1559 will be passed, which will continually burn 70% of the transaction fees in Ethereum.
If EIP-1559 were already live this year, it would have already burned 9 million ETH out of circulation, this is currently 7.76% of the circulating supply.
With the current annual inflation for Ethereum of 4.5%, this would already make it deflationary, but it won’t be this high after August, because fees were so high in the first half of the year due to low scalability on Ethereum. With more scalability coming with Optimism, the burning will also be less.
EIP-1559 goes live, it will receive 2 additional Halvings with ETH 2.0 POS.
With the Triple Halving complete, the circulating supply will drop roughly 2% per year, leading to a deflationary supply, that is insane.
2. Narrative Adoption
Price leads narrative.
A narrative by itself can create a price increase, but a narrative + a significant price increase fully validates the narrative and often induces a price explosion.
The following events will convince short- and long-term investors:
- Exploding active accounts & transaction volume
- Insanely low fees
- Attractive DeFi & staking yields, NFTs are fun, use-case more intuitive than digital gold and the digital gold use case is also part of the package
- Soon coming environmentally-friendly Ethereum 2.0. This is required to break into mainstream adoption. Bitcoin failed at this hurdle.
Bitcoin now has a deteriorating narrative of dropping usage, bad energy balance, and little utility. The only thing allowing Bitcoin’s price stability is a vague story of new finance that falls apart once you look closer into it.
When you’re currently using up 0.7% of the world’s electricity while only serving 50 million people and you would likely need to use 70% when you would serve 5B people, it’s simply a non-starter, especially in today’s climate where protecting the environment is the number one item on every developed countries agenda.
As well, it is only a matter of time that Elon Musk jumps on the Ethereum bandwagon. We can soon look at Tesla acquiring a significant stack of Ethereum and Musk, the richest man on earth, praising Ethereum’s soon upcoming launch of energy-friendly Ethereum 2.0 POS. This news by itself will make Ethereum pop to $10,000.
But isn’t the narrative not priced? It isn’t.
- The Triple Halving narrative only came into existence on April 27th (), 2 months ago, so it is very new and nobody knows about it. ETH trail BTC search results by large margin. Why don’t people know?
In the last cycle, the world learned about Bitcoin, not Ethereum. When cryptocurrency mania last happened, the current narrative didn’t yet exist. No plans for Proof of Stake or EIP1559, no DeFi existed or NFTs.
Bitcoin’s narrative has dominated attention in the cryptocurrency space so far.
The shifting narrative from Ethereum to Bitcoin only happened a couple of weeks ago when Bitcoin failed to overcome the environmentally friendly hurdle and also the mainstream realized that Bitcoin is not fit for mainstream. This opened the pathway for something better. - Ethereum has not seen a price increase since then, further confirming that it is not priced in yet.
- The Bitcoin Halving was never priced in even though people knew about it 4 years in advance and it always led to a 100x price increase. So overall, it’s very unlikely that the Triple Halving is already priced in.
3. Extreme adoption & subsequent illiquidity squeeze.
Now, Ethereum has flipped Bitcoin in every important metric, only the last one is missing, the market cap and that one is only one doubling of Ethereum away.
The entire world will run on Ethereum, payments, investments, banking, research, medicine, education, video, mobile…everything.
In this spirit, Ethereum has flipped Bitcoin in more and more metrics over the years.
First, it was more transactions already back in 2017.
Source: Bitcoin, Litecoin, Ethereum Transactions Chart
Then, daily active addresses.
o sum up these 3 points that will lead to a price explosion in Ethereum, the trajectory in which Ethereum is moving ahead and gaining adoption is very strong.
However, there are of course still risks that could hinder the above laid out market development of Ethereum and the chances to come true. So let us look at those.
Potential Risks
SquishChaos has made a great risk analysis in his Triple Halving Research report.
- 70%: Proof of Stake is delayed more than 2-3 months: 70%. Delays for Ethereum have happened often. The first Halving with EIP-1559 is highly likely to happen within the next few months, for the additional 2 Halving with ETH 2.0 POS, it could only happen in Q1 2022 or Q2.
- 30%: Transaction fees are too low after scaling for fee burn to have an impact on price. This risk is very hard to determine since we don’t know the impact of Optimism and the development of this bull cycle over the next 4 months.
- 40%: Scaling could fail to reduce fees, because adoption is too fast or Optimism is delayed again or not adopted quickly enough by the main gas consumers Uniswap and Tether.
- 30%: Volatility doesn’t need to mean upside volatility. If illiquidity is created, but Bitcoin peaks before demand can flow into Ethereum, maybe illiquid outflows tank the price too much for the triple halving to make a difference.
- 30%: Ethereum is a “risk on” asset and a liquidation event in global markets would tank Ether with all the rest of the world’s assets, just like in the 2020 COVID crash.
This risk always exists. The chance for such a liquidation event is rather high with the markets in upheaval as right now, however, such an event could also cause a big spike to the upside for Ethereum due to an exodus from traditional, inflated finance into scarce and deflationary Ethereum. - 25% chance: EIP1559 and Proof of Stake get passed but there are issues with the upgrade. However, this should only be a temporary thing and should not have a major longterm impact.
- 20%: If Bitcoin has major outflows before Ethereum’s narrative is adopted, it would be a major headwind for Ethereum’s price that could possibly overcome the effect of the triple halving.
Though, I see this risk as rather small since Bitcoin is losing relevance by the day and Ethereum often has higher trading volumes than Bitcon. - 20%: Geopolitical regulatory risk could arise. If Ethereum at 100k is a ~10T market cap, this could become a new issue. However, even if that were the case Ethereum is a decentralized asset and no government could really ban Ethereum at this point without upsetting its populace or economy.
- 20%: Ethereum’s monetary policy could change towards a more inflationary stance. This risk always exists, but it would be nonsensensical for the community to pursuse this avenue when the entire crypto community is driven by scarce stores of values. It’s simply too good to hijack the digital gold/ store of value narrative from Bitcoin.
- 5%: The Triple Halving could be priced in. What if everyone does know about Ethereum and DeFi and I just don’t see it in my information bubble? However, almost no one knows about the Triple Halving. Most are still in anguish about their losses after the Elon Musk dump and aren’t even able to dream about bullish scenarios again.
Most of these risk aren’t really that impactful, but those are the most impactful:
- 70%: Delay of Proof of Stake
This scenario is very highly likely to happen. That’s why we shouldn't bank on PoS being launched this year, but rather next year. If ETH 2.0 POS can be launched this year, however, then, we could even see a $100,000 Ethereum this year. Again, it is unlikely to happen though. - 30%: Transaction fees being too low due to scaling or lack of usage
If Ethereum scales too well, fee burns would not have such a big impact on price.
If this bull run is over and there is a slow down in the market, this could happen.
However, with the massive evolution of DeFi, NFTs, the next trend being around the corner, mass-inflation happening at the very moment, this is quite unlikely to happen.
Opposed to those 2 risks is a large institutional buyer, which would make the price jump to or by $10,000 immediately and make those 2 risks irrelevant by propelling the markets into a second bull cycle, just like it happened with Tesla buying $1.5B worth of Bitcoin. This institutional frenzy would also increase fees again and even with low fees, we are very likely to see a $20,000 or even $40,000 Ethereum even if Ethereum 2.0 POS is delayed.
As well, if Ethereum 2.0 is not delayed and actually goes live this year, $80,000 is definitely on the table. This is not so likely to happen though.
All in all, this gives us the most likely scenario of Ethereum settling somewhere above $10,000 with the potential to go up to $80,000 in its best-case scenario.
I’m even rather conservative on Ethereum this year.
Here is a price estimate by the author of the Tripel Halving Paper(linked below):
Of the paper estimates $30,000-$50,000 base case and $150k best case for Ethereum in an illiquid & speculative peak if none of the above risks come true.
Prior valuation models based on inferior comparables (BTC Stock to flow, Payment networks, Metcalfe’s law, DCF model on YTD fees) result in a 30-50k base case.
Is a 16T market cap at $150,000 per Ethereum too high? Not for illiquid, manic, peak. Proof of stake lowers geopolitical risk and increases network security at that market cap. It also locks up float so price is inelastic to new demand even at high market caps. Yield incentivizes further institutional flows which increases volatility.
Buyer beware! $30k-50k base case implies $3.5-5.5T market cap, which investors could sustain long term given fundamental network value. $150k peak, however, implies a $16T market cap, unlikely to be sustained past short-term. Illiquidity producing upside volatility just as easily seeds downside volatility.
Before we move on, I want to pause to acknowledge that an investment report making the case for a fat tail event is a different kind of investment report than many are used too. If Ethereum hits 150k, it will constitute a fat tailed event.
A 16T market cap is larger than that of gold and nearly 1⁄3 of the market cap of US equities. I’ve made the case so far in this report for why the conditions are set up for such an event. However, it’s important to note that the conditions are not necessarily set up to sustain a 16T valuation for long after. Cryptocurrency investors are familiar with this kind of manic peak followed by a major drawdown, but in this case the illiquidity conditions will cause the volatility to be even more massive. Illiquidity seeds volatility both to the upside and the downside. It’s a double edged sword. As quickly as a final leg to 150k might happen, a drop back to 50k could happen even faster as investors attempt to monetize that 16T valuation.
This does not mean I’m not confident in my case. At less than $3,000 currently, I believe that a simple buy and hold investment strategy in Ethereum has an incredible margin of safety even if you ignore the 18 month volatility I am projecting. However, if Ethereum realizes a $30,000 to $50,000 market cap, the risk-return profile becomes more symmetrical from there. EIP1559 or Proof of Stake doesn’t get passed. Similar to Merger Arbitrage risk. The main risk here is miners revolting
Conclusion
Sound Money.
Bitcoin was called Sound Money, now Ethereum is called Ultrasound Money, because it is.
After Bitcoin’s decade-long reign, it’s the turn for a new blockchain to take its place. First mover advantage and a brand name only takes you so far.
Ethereum currently simply is everybody’s darling and Bitcoin is the grumpy boomer that no one really likes except a few cultists whose entire meaning of life is BItcoin. Bitcoin has lost the PR-war with Elon Musk denigrating Bitcoin and once you’ve lost the PR-war, there is no way to really come back.
If you are still in doubt, institutional investors most likely know about the Triple Halving and have started to pour in more money into Ethereum than into Bitcoin (Institutional investors load up ETH, with its share of AUM hitting a new record).
I can tell you a little secret about crypto trading:
Always follow the whales.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.