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ETH Trades at 500% Premium as the Bull Begins its Run


Ethereum Price: $196.36
Ethereum Price (BTC): 0.025406BTC
ETH Locked in DeFi: 2.77M (2.50% of circulating supply)
Market Cap: $21.74B
ETH Network Dominance*: 54.24%
7 Day Candle**: $181.89 / $200.00 / $167.00 / $196.36

The upcoming launch of ETH 2’s “Phase 0” is now closer than ever and last week we released a staking rewards calculator. Using the calculator, it’s possible to run a huge range of different scenarios to help users and investors gauge an expected ROI.

It would be bold to short ETH at this time. Data from Synthetix shows enormous weight towards ETH longs, indicative of the bullish sentiment held by many of those who are close to Ethereum (Synthetix is a synthetic asset platform on Ethereum).

ETH interest on Synthetix

When considering those further away from the matter (retail), the data is even more compelling.

Greyscale’s Ethereum Investment Trust is trading at a dumbfounding premium after recording record ETH inflows for the first quarter of 2020. To buy the equivalent of 1 ETH with Greyscale, it would currently cost a touch over $975 (along with a 2.5% annual management fee).

To put that into perspective, Greyscale’s Bitcoin Investment Trust has a single Bitcoin costing $8875 – still a considerable 15% premium but it’s not 500%.


Shorts beware.

EIP 1559 – an Ethereum proposal to burn ETH on every transaction – is due to have its first implementers’ call on Thursday 30th April at 14:00 UTC. The EIP’s primary purpose is to create better efficiency in calculating transaction fees. One major side-effect of this EIP is that its implementation will – combined with Proof of Stake – reduce supply issuance to at or around 0%. While the EIP is a long way from being approved, its backers include significant voices from inside the community including Vitalik Buterin (a co-author of the proposal).

EIP 1559 could have a greater than expected impact, too. Last week, updated Tether’s platform label to read “Ethereum” after several years of being listed on Omni (a Bitcoin side-chain). The change in classification has been well overdue following a sustained shift in the currency’s blockchain issuance that “flipped” with Bitcoin several months ago. Of the $7.5 billion in Tether supply, $5.4 billion now exists on Ethereum.

Stablecoins have seen an enormous spike in usage following the Coronavirus outbreak and the subsequent plummet in equities and crypto. As a result, both Tether and Coinbase’s USDC have had ~50% increases in their market capitalizations since the start of the year and trading volumes have been sustained.

This activity has contributed towards the total value transferred on Ethereum matching that of Bitcoin for the first time ever. And with such strong growth in demand for the Ethereum blockchain, the impact of EIP 1559 may have more of a supply-side shock than first anticipated.

And an Ethereum supply shock is coming.

Under Proof of Work, Ethereum miners are forced to sell their mined ETH for fiat currencies to pay for electricity bills, rent, hardware and other substantial operating costs. The competition among miners is so fierce that there is little room for speculation on the price of ETH (hodling) and success is measured in fiat profits.

With Proof of Stake that all changes. The operating cost of running an Ethereum staking validator will be as little as $50/month and the marginal cost of staking additional ETH will be very low. Not only this, but staking rewards are added to a validator’s locked stake, meaning that their total stake increases over time and would rarely (if ever) need to be sold to cover costs.

The implication that this has is profound. In the last year, roughly 5 million new ETH have entered circulation. Most of that ETH would have hit exchanges to be sold to cover the operational costs of miners. Under Proof of Stake, a significant portion of issued ETH will likely not see the light of day. A large chunk of ETH/fiat asks will simply go poof.

There are concerns about this too, however. Under conditions where issued ETH no longer needs to be sold to cover expenses, wealth will pool within validators while the masses fight over the resulting premium for liquid ETH. Larger validators will also earn more of the rewards and exchanges like Binance and Coinbase – who are likely to offer “Staking as a Service” – could find themselves with significant power over the network.

That said, Proof of Work chains still suffer from centralization issues and mining pools already control large portions of both the Bitcoin and Ethereum networks; worse still, much of the mining power is centralized geographically, a problem that Proof of Stake will solve to a great extent.

Despite this, the bull case for Ethereum seems greater than ever and the price of ETH has so far outperformed Bitcoin by nearly an order of magnitude (50% to 7%). Those who accumulated at $90 in March will be patting themselves on the back; and with the Bitcoin halving also due in two weeks, it feels as though we are on the cusp of some extraordinary price rallies.

Nick, Owner

* calculated as: (ETH Market Cap / Ethereum Network Market Cap)
** open / high / low / close

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