Ethereum is the second most popular cryptocurrency, only behind Bitcoin. In the past two months, ETH has lost half of its value, however, it is still 20 times more than last year and is poised to surge in to come.
Ethereum as a crypto class asset is so unusual that investors have struggled to measure its value. In the past years, theories and patterns have emerged on the laws of supply, demand, utility, and rarity.
One such pattern noted include the belief that a digital asset is valued more when the supply is limited, and utility is extensive. For instance, Bitcoin is gaining usage in the storage of value. However, its supply is capped at 21 million.
Contrary, ETH is not widely adopted as a storage of value. It has more circulating supply at 116 million and has no hard supply cap.
Ethereum Improvement Proposal (EIP) 1559 recommends some changes to the way fees are handled on the Ethereum network. The proposal will reduce users’ fees. It will also reduce the supply of outstanding ETH, making the remaining ETH worth more.
The upgrade has been authorized for implementation by the Ethereum community, by late July or August. Once fully implemented, thousands of ETH will disappear from circulation every year. This will effectively limit the supply of Ether.
Though the supply is set to be limited, the demand is skyrocketing. The main reason behind increasing demand is its new application in non-fungible tokens (NFTs). Celebrities and corporations have also launched digital art via NFTs that is also causing high demand for ETH.
Decentralized financial (Defi) applications have also increased recently. These applications are locked to ETH smart contracts that limit supply. Estimates indicate that roughly 9 percent of ETH is locked in Defi applications.
Another Ethereum network stake protocol upgrade is scheduled in 2022. After the upgrade, ETH will be generated by staking 32 or more ETH in a pool. The bottom line, the supply and demand factors will make Ethereum more valuable. Ethereum is still relatively cheap, and investors can rush and buy before the upgrade.