Ether Could Rise in 2024 on the Rise of Dencun Update, ETF Narrative: Analysts

Investors are likely to reconsider ether as the spot ETF narrative takes hold and Ethereum remains the dominant chain in the DeFi and NFT world, according to analysts.

Ether is qualified to be a core holding in a diversified crypto portfolio, one observer said.

Ether (ETH), the native token of the Ethereum blockchain, has underperformed bitcoin (BTC) in 2023, as the latter’s new smart contract, non-fungible token (NFT) narrative and ETF spot optimism have attracted money from investors.

According to analysts, investors will likely reconsider Ethereum this year as Ethereum is still the world’s leading smart contract blockchain with key upgrades scheduled, and Ethereum is widely seen as the next likely candidate to get a spot ETF in the US

“ETH could be poised for a breakout year,” Nasdaq-listed cryptocurrency exchange Coinbase said in its weekly newsletter. “Last week’s bitcoin ETF news proved to be a boon for ethereum, which briefly topped $2,700, reaching its highest price since May 2022. And there are reasons to be even more optimistic about the future a short-term ETH. For one thing, many of the firms behind BTC ETFs, including BlackRock and VanEck, are also designing ether-based spot ETFs.”

A spot ETF invests in the real cryptocurrency, allowing investors to get exposure to the asset without having to own it, and is considered a better option than futures-based ETFs, which are vulnerable to roll costs. So, just like BTC spot ETFs, a potential launch of ETH spot ETFs is expected to open the door to institutional and retail money.

Nearly a dozen spot bitcoin ETFs began trading in the U.S. late Thursday and have seen cumulative volume of more than $10 billion, with BlackRock’s product racking up inflows of $1 billion.

Dencun update and institutional application

Additionally, Ethereum’s upcoming Dencun update, which aims to improve mainnet scalability by introducing “data blobs,” could galvanize investor interest in the cryptocurrency, according to Coinbase. The update was made available on Ethereum’s Goerli testnet earlier this week.

A blob is a temporary storage of transaction data typically related to Layer 2 solutions that can be connected to Ethereum. After upgrading to the main network, the network will only need to confirm the correctness of the blob data attached to the block rather than verifying each transaction, helping to reduce congestion and network fees.

“Ethereum’s Dencun upgrade began initial testing on Wednesday and is expected to roll out EIP-4844 (“EIP” stands for “Ethereum Enhancement Proposal”) in the coming months, which some ETH watchers predict could help reduce the fees of network of 90% or more.” Coinbase noted.

Institutional cryptocurrency firm ETC Group, in its annual report, discussed a bullish outlook for the ether-bitcoin relationship and explained that despite 2023’s sign-up-driven boom in Bitcoin network activity, Ethereum remains the dominant chain for creating decentralized applications, NFTs and tokenized assets.

For example, data tracked by ETC Group shows that the top 10 ERC-20 tokens have a cumulative market value of $21 billion, which is 13 times larger than the $1.6 billion market capitalization of the entire token universe. BRC-20 token of over 37,000 coins. ERC-20 is the standard token of Ethereum, while BRC-20 is a fungible digital asset created on the Bitcoin network.

Additionally, ether investors can generate extra returns on top of their holdings by staking or locking their coins in the network in exchange for rewards. The current annualized reward rate is around 3.84%, averaging around 4%-5% since Ethereum completed the merger in September 2022.

Finally, Ethereum’s feature of burning a portion of transaction fees paid in ETH has a deflationary effect on the token supply, positively influencing investors.

“Ethereum’s strong dominance in terms of smart contract platforms and the potential to earn an additional source of yield means it should also be a core holding in a diversified portfolio of cryptoassets,” ETC Group said. “We therefore believe it is very likely that the relative performance of ETH/BTC will reverse in 2024. Indeed, the 12-month relative performance of ETH/BTC has historically shown a strong mean-reverting tendency,” ETC Group added.

Ether has outperformed Bitcoin this year, with the Ether-Bitcoin (ETH/BTC) ratio higher by 10%. Last year the ratio fell by more than 25%.

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