Original title: The Bullish Case for Ethereum
Original author: Ignas
Original source: DeFi Research
Compiled by: Mars Finance, Daisy
It’s easy to be pessimistic about ETH right now. Since the market low in early 2023, it has underperformed SOL by a factor of 6.8, and over the past two years, ETH is down 47% relative to BTC.
Should we expect a rebound?
I’m running out of ideas for banners. Any suggestions?
Bearish view on Ethereum
The reasons for ETH’s poor performance are controversial, but in my opinion, there are several important reasons:
Bitcoin is “digital gold” — a simple narrative that is easy to understand, especially for new retail users and institutions. In contrast, Ethereum’s story is more complex. The popular “digital oil” analogy is neither appealing nor accurate.
Solana Overtakes Ethereum: Solana is catching up and sometimes surpassing Ethereum in terms of active users, transaction volume, and market attention.
Therefore, Bitcoin is the safer bet for cryptocurrency adoption, while Solana is the riskier (lower market cap) bet for smart contract adoption. Ethereum is squeezed between the two.
Ethereum’s modular approach and L2s (Layer 2 solutions): This fragments liquidity and complicates the user experience.
Those “degens” (or “decentralized gamblers”) who bet on the modular approach spread their buying power across Ethereum’s test tokens such as multiple L2s, LRT tokens, and DA tokens. In contrast, betting on Solana only requires buying SOL tokens.
I believed that Ethereum (ETH) would outperform Bitcoin (BTC) as market participants recognized the high yield of airdropped mining rewards. Indeed, my actual performance on ETH was much higher than the spot price implied, thanks to airdropped rewards from the re-staking protocol.
However, this did not trigger FOMO (Fear of Missing Out) on ETH, possibly because of overexposure during the bear market, many people believed that ETH would not fail and bought in heavily.
On the contrary, few people hold SOL in cryptocurrencies. When SOL rises, more native cryptocurrency users switch from ETH to SOL. In the absence of significant retail inflows, the price of ETH has stagnated.
Another issue is the declining revenue and destruction rate of ETH.
After the EIP-4884 Proto-danksharding upgrade, L2 (second layer) fees were reduced, resulting in a lower ETH burn rate. Although ETH's inflation rate is still below 1%, it is still a setback for investors who are bullish on ETH as an ultrasonic currency (i.e. long-term value preservation).
You can see clearly the ETH burn trend reversing after the EIP-4844 launch in March
There is currently very little discussion on Twitter about "ultrasound money".
Despite the constant stream of bearish sentiment on X (formerly Twitter), ETH sentiment remains bullish, though not as strongly as BTC.
Instead, let’s discuss the bullish arguments for Ethereum (ETH).
Bullish arguments for ETH
There are many reasons to be optimistic about ETH. I asked my followers on X (formerly Twitter) to share their thoughts.
Feel free to check out the comments in the thread, but here are my top 10 reasons (with help from Kaito AI):
If gas fees remain around 20 gwei, Ethereum is seen as both deflationary and scalable, making it an attractive and efficient network. Note: ETH's gwei has been below 20 since March.
Regular users can now stake ETH independently from home, which increases the decentralization of Ethereum and makes it attractive to individual investors and validators using consumer-grade hardware.
The strong developer community and accumulated brainpower in the Ethereum ecosystem supports continued innovation and the robustness of the network.
Ethereum is considered the leading smart contract platform with no real competitors, maintaining reliability and decentralization.
Ongoing developments, such as second-layer solutions and interoperability improvements, are significant bullish factors, while efforts are underway to reduce fragmentation and increase network efficiency.
Increased regulatory clarity, particularly in the U.S. and EU, has bolstered confidence, enabling institutions like BlackRock to adopt Ethereum.
Improved staking options allow all ETH holders to participate in network security without requiring extensive technical knowledge or resources.
Major institutions like Coinbase and Blackrock have shown increased adoption of tokenized real-world assets (RWAs) on Ethereum.
The expansion of DeFi capabilities on Ethereum and the dominant potential of stablecoins provide plenty of room for growth and market leadership.
The enthusiasm and collective pride of Ethereum holders and users has contributed to the positive outlook and increased market interest.
I also asked several prominent ETH people on X (formerly Twitter) why they are bullish on ETH. Among the respondents were Camila Russo, founder of The Defiant, and Christine Kim, a researcher at Galaxy.
Here are the reasons why Camila is bullish on ETH:
Mature DeFi ecosystem: Ethereum and its second-layer solutions offer the most mature DeFi ecosystem in crypto, in terms of combined total value locked (TVL) and transaction volume. This concentration of liquidity and decentralized applications (dapps) will attract more users, which in turn will cause activity to begin to be reflected on the first-layer chain, driving gas fees up and more ETH being burned. DeFi is critical because finance is one of the few cryptocurrency application scenarios with real market adaptation.
Decentralization and Security: Ethereum is so decentralized and secure that the world’s largest institutions trust it when they go on-chain: BlackRock through its BUIDL fund, PayPal through PYUSD, JP Morgan, Santander and other large banks are testing blockchain settlement and tokenization on Ethereum. Large institutions that cannot afford blockchain downtime, validator/miner attacks and malicious behavior will continue to choose Ethereum. This will drive growth in activity and price.
ETH ETF: ETH is one of only two cryptocurrencies in the United States that is available for institutional investors to invest in through an ETF, which will provide long-term support for ETH prices.
Christine Kim highlights Ethereum’s network effects
I believe that one of Ethereum’s main advantages over its competitors is its network effect. Ethereum is the first general purpose blockchain (first mover advantage) and has the largest developer following (strong community/ecosystem), both of which I believe have contributed significantly to the value of the network.
Indeed, Ethereum is where I would prefer to store my long-term holdings. Solana has had downtime issues several times, while Ethereum has proven its reliability over the years.
I am also very bullish on Ethereum as a real world asset (RWA) chain for asset tokenization. For example, 52% of all stablecoins and 73% of all US Treasuries are tokenized on Ethereum.
U.S. Treasury tokenization - rwa.xyz
If you’re bullish on memecoins, Solana might be your choice, but for tokenizing billions of dollars of real-world assets (RWAs), Ethereum is the safest place to be.
Next, an important question is the second layer solution (Layer 2s)
Solana, as a monolithic chain, is fast and low-cost, but may still encounter its limitations.
Modular scaling provides a long-term solution through L2s, as scaling can always be increased by rolling out L2s for specific use cases. L2s provide more flexibility, simplicity, and room for cultural sovereignty. Cygaar articulated this well in the post below:
The current liquidity fragmentation and worse user experience caused by reliance on bridges is hopefully only a temporary problem. For example, Catalyst AMM will allow atomic swaps between different chains - eliminating the need for bridge assets. In this case, liquidity is still fragmented, but end users are still able to get the best price because liquidity comes from multiple chains. More solutions like Catalyst are in the pipeline.
And then there are more significant efforts driven by L2 itself.
Optimism is “integrating ERC-7683 to enable application layer interoperability between Superchain and other Ethereum L2s,” meaning all L2s in the Optimism ecosystem will operate as one.
Similarly, Polygon is building an AggLayer, which means “one-click cross-chain transactions. It will recreate the online experience, but in a network of protocols.”
There’s also Caldera’s Metalayer, Avail Nexus, and Hyperlane.
Multiple aggregation solutions are also a problem, but liquidity and user experience issues should be resolved in the future.
I think people underestimate how quickly this change is happening. I recommend following Andy's updates on X to get the latest information on modular expansion.
In the meantime, learn more about multiple products currently addressing this problem in this Blocmates article .
In fact, Vitalik also said that people will be surprised how “cross-L2 interoperability issues” will no longer be an issue.
If you need more bullish ideas, check out Emmanuel’s post below. He is bullish because of ETH’s strong community, continued innovation, and long-term adaptability.
I would be very optimistic if L2 fragmentation issues are resolved and RWA and tokenization adoption continue to grow on Ethereum, but these are long-term factors.
In the short term, there is a little discussed catalyst: the Pectra upgrade.
What are Pectra upgrades?
The Pectra upgrade is the next major milestone for Ethereum and is expected to be launched in the first quarter of 2025. It merges the Prague (execution layer) and Electra (consensus layer) updates.
For more details on the timeline and specific EIPs, visit Ethroadmap.com
All major Ethereum upgrades have been hyped up before, but Pectra doesn’t seem to have caught the attention.
I understand why. Ethereum has had major changes: migration from PoW to PoS, ETH burn initiated, and EIP-4884, etc. However, Pectra has some cool upgrades.
1. Account abstraction: ultimately improving user experience
One of the biggest changes to Pectra is the way it handles accounts.
Currently, managing a wallet involves a lot of annoying steps, from signing transactions to managing gas fees for different networks. With account abstraction, Pectra simplifies the entire process.
EIP-3074 and EIP-7702 are two proposed improvements. EIP-3074 allows traditional wallets (externally owned accounts or EOAs) to interact with smart contracts, such as enabling batching and sponsored transactions.
EIP-7702 goes a step further and allows EOA to temporarily act as a smart contract wallet for the duration of a transaction. Temporary means that your EOA wallet becomes a smart contract wallet only for the duration of the transaction. It works by adding the smart contract code to the EOA address. WTF? Anyway, I wanted to see it in action.
In practice it means:
Approve USDC and redeem UNI in one transaction.
dApps can provide gas fees to users (easier adoption)
Pre-approve dApps to be used with this wallet and set spending limits
NOTE: It appears that EIP-3074 has been preempted by EIP-7702, which Vitalik wrote in 22 minutes! EIP-7702 is also compatible with future implementations of AA.
This “EOA temporarily becomes a smart contract” approach is cool, as current dApps are often not compatible with smart account wallets (try using Safe or Avocado multi-signature with a dApp). Hopefully AA will get more attention after the upgrade.
2. Improvements to equity pledge
For those running validators, Pectra brings some big changes.
EIP-7251 increases the maximum stake of a validator from 32 ETH to 2048 ETH. It allows large stake providers to consolidate their stakes, thereby reducing the number of validators and alleviating the network load.
This is also a benefit for smaller stakers as it provides more flexible staking options (you can stake 40 ETH or compound rewards). In addition, ETH staking queue times will be reduced from hours to minutes.
One big thing I’m excited about has to do with MEV mitigation, but it doesn’t seem to be available for the Pectra upgrade.
3. Scalability Improvements
Pectra introduced Peer Data Availability Sampling (PeerDAS) through EIP-7594.
Like Proto-Danksharding in the previous Dencun upgrade, PeerDAS will enable cheaper transactions on L2. But I can't find numbers on how much cheaper it will be (I assume PeerDAS will be especially useful during peak usage). 0xBreadguy mentioned that Pectra will increase blob capacity by 2-3 times.
Then there are multiple technical upgrades like BLS12-381 for making BLS signatures shorter (reducing gas costs), and EIP-2935 for verifying transactions without needing all of the blockchain history.
These EIPs, along with the Verkle Trees Transition (EIP-6800), which will eventually replace the existing Merkle Tree structure, can make light clients more secure and make it easier for nodes to participate in the network, thereby increasing decentralization.
One of the major changes is the 11 EIP changes to the EVM, which will make it easier to write and deploy smart contracts, thereby reducing costs and increasing efficiency. In other words, development on Ethereum will become smoother.
Check out this post from an Ethereum intern for a simple explanation of the impact of the technical upgrade.
I’m glad that single slot is finally (SSF) coming out with the Pectra upgrade, but it’s not yet included in the following Osaka upgrade.
Vitalik shared in December 2023 that SSF is the simplest way to solve most of the flaws in Ethereum’s PoS design.
Currently, Ethereum’s proof-of-stake consensus takes about 15 minutes for a block to reach finality, meaning it cannot be changed or deleted without a huge economic cost. SSF seeks to reduce this time to one slot, or about 12 seconds, ensuring that blocks are finalized almost immediately after creation.
In practice, this means faster, more secure bridges, and faster CEX deposits. It is disappointing that this has not happened yet. Leaving it out of the upgrade is pessimistic and shows that Ethereum developers are still not prioritizing L1 scaling. I would be more optimistic if there were more clear signs that the core ETH community is focusing on L1 scaling. At the moment, it does not seem to be a priority.
Regardless, Pectra is a technology upgrade, but I think the market is underestimating its significance.
Now, let’s talk about ETH price.
VanEck’s base case price prediction for ETH is $118,000 by 2030.
Honestly, $118k is pretty pessimistic (I expect it to trade higher in 5 years), but keep in mind that VanEck’s base case forecast for Solana in 2030 is only $335.
Therefore, based on the base case forecast, ETH has a potential gain of 4.4x, while SOL has a potential gain of only 2.2x. Note that both of these forecasts were shared over a year ago (before the ETH ETF was launched), so it would be interesting to see their updated forecasts.
By the way, if you need more hope, Ark Invest CEO Cathie Wood predicts ETH will reach $166,000 and BTC will reach $1.3 million by 2030.
However, I am more excited about the bullish prospect of ETH reaching $51,000. Anyway, VanEck’s ETH price prediction is based on:
VanEck predicts that by 2030, Ethereum will have 70% of the market share for smart contract platforms, leveraging its position as the dominant open-source global settlement network.
Ethereum revenue is expected to grow from $2.6 billion per year to $51 billion by 2030. This growth is attributed to the increase in transaction fees, MEV, and the introduction of “security as a service” (SaaS) - using ETH to secure other protocols (restaking).
Ethereum is expected to attract more economic activities in the fields of finance, banking, payments, metaverse, social, gaming, and infrastructure.
Ethereum is valued for its potential as a store of value asset, with its utility enhanced by smart contract programmability and cross-chain messaging technology (smart collateral).
Below is a summary of the base case, bear case, and bull case scenarios.
The base case scenario of 70% smart contract dominance seems pretty fair to me, even though Ethereum’s dominance is only 58% right now (but all L2s are around 65%). Dominance has remained the same since early 2022, despite SOL’s crazy rally.
TVL dominance will be a key metric to watch as institutions really seem to care about it.
Another metric that both institutional and retail investors watch is ETH ETF flows.
Ethereum ETF
If someone had told me a few months ago that ETH had an ETF but was trading below $3,000, I would have thought crypto was in a bear market.
It's too early to tell, but the ETH ETF seems to be getting more bullish every day. Grayscale outflows have been falling fast, and net flows have been positive for three consecutive days. It looks like those who needed to exit Grayscale have already done so.
We already know how big of an impact Grayscale can have, but the upside potential will be a pleasant surprise. If the trend continues, the future looks bright for ETH!
So, given everything that’s going on with Ethereum, are you bullish on it?
