Fundamental Analysis of Ethereum: Is ETH a good long term hold?
Over the past half-year, a relentless storm has battered Ethereum, resulting in a staggering 20% decline. This nosedive can be attributed to the US’s constantly high inflation rates and the alarming report that inflation has seeped into the wider economy. On September 15th, 2022, Ethereum underwent a transformative shift from proof-of-work to proof-of-stake, known as “the merge,” and the upgrade was a resounding success. However, contrary to expectations, the transition failed to rally ETH prices, which remained shackled to the bleak crypto market sentiment that has lingered well into 2023. To add insult to injury, Ethereum’s plight was further aggravated by the tumultuous fall of the FTX crypto exchange in November.
So where does Ethereum stand now, as we are three months into 2023? Is ETH a good coin to hold in the long term? To answer this question we have covered an in-depth fundamental analysis of Ethereum in this article so that you know whether or not it is a good buy for you.
What we are going to learn?
What is Ethereum?
Ethereum serves as a revolutionary platform in the crypto space, addressing smart contracts and decentralized apps. This technology acts as a computing protocol in the form of a distributed blockchain. Ethereum empowers users to create institutions and applications, transfer assets, and interact without the constraints of centralized control. Ethereum’s design prioritizes user privacy and autonomy, ensuring that personal information remains securely in the hands of its rightful owners. In this ecosystem, users can retain full power over their data and choose what information they wish to share. At the heart of Ethereum’s functionality is its native cryptocurrency, Ether. Ether serves as the lifeblood of the network, enabling users to pay for transactions, engage with the platform’s blockchain, and access a myriad of exciting activities.
Ethereum, which was established in 2015, represents a significant advancement beyond Bitcoin’s foundational breakthroughs, with some significant differences. While both systems allow for the use of virtual currency without the need for intermediaries like banks or revenue providers, Ethereum offers an unparalleled power of programmability. It provides an efficient platform for the creation and implementation of several innovations and decentralized applications. Unlike Bitcoin, Ethereum’s capabilities extend beyond mere payment processing, enabling the development of a broad range of monetary benefits, games, social media, and other privacy-respecting products that operate beyond the reach of censorship. Ethereum’s versatility makes it more than a mere payment provider or ecosystem, but rather a dynamic marketplace of cutting-edge services and applications.
What are the key metrics of ETH?
At the time of writing this article,
- The current value of Ethereum is 1,570 US dollars,
- The currency holds the #2 ranking on the crypto price charts,
- And it boasts a live market cap of $20o,564,970,751 US dollars.
- Ethereum has a circulating supply of 122,373,866 ETH coins
- The Coin’s All time High (ATH) was 4,899 US dollars and it is around 66.6 per cent down from its ATH
- No Max Cap value set for the maximum supply of ETH coins
- The Current Yearly Issuance Rate it shows is 0.54 percent.
What are the Tokenomics of ETH?
The allocation of Ethereum (ETH) during its initial allotment was divided as follows:
- 83.33 per cent was distributed to the Ethereum Crowdsale.
- 16.68 per cent was assigned to the stakeholders, including but not limited to the Ethereum Foundation and the Loyal Contributors.
This allocation structure helped fund the ongoing development of Ethereum and supported early contributors to the project, allowing them to participate in the growth and success of the network.
Ethereum’s native cryptocurrency, ETH, serves various purposes within the network. It is primarily used to pay for transaction fees incurred when executing smart contracts or deploying decentralized applications. Additionally, ETH is used as collateral in decentralized finance (DeFi) protocols and as a payment method in non-fungible token (NFT) transactions.
Since the “merge”, the circulating supply of ETH is decreasing. Furthermore, Ethereum burns a portion of the ETH supply through gas fees, which helps to mitigate inflation and maintain the currency’s value. In fact, the current supply growth of ETH is negative at -0.04 per cent, positioning it as a deflationary investment. As the demand for the Ethereum network continues to grow, the burning of ETH through gas fees will help maintain the currency’s value over time. This deflationary aspect adds to the attractiveness of ETH as an investment asset for long-term investors.
To understand more check out our article on What is Ethereum Merge trade?
What are the business Fundamentals of Ethereum?
- The Total Transaction Fees paid by users in a span of 30 days is 169.49 million dollars.
- The annualized Fee is 1.32 billion dollars.
- The ratio of circulating market cap and annualized fee; also known as the P/F ratio is 95.54x
- The Revenue generated which is the share of the transaction fees that are burned is 145.12 million dollars
- Ethereum has a 30 day earning of 62.3 million dollars, which is the highest for all blockchains.
- The 30 day average of the Daily Active Users is around 353 thousand
Here is a breakdown of some important statistics related to Ethereum (ETH):
- The total fees collected by Ethereum over the past 30 days have increased by 54.5 per cent.
- Since Ethereum’s transition from proof-of-work to proof-of-stake (known as “the merge”) the total supply of ETH has decreased by 4,454.43.
- On average, ETH tokens are held for a period of 1.9 years by investors before they are moved or exchanged.
- Approximately 60.37% of all ETH tokens are owned by retail investors, rather than large institutions or exchanges.
- Over the past 30 days, the amount of ETH flowing into cryptocurrency exchanges has decreased by 5.77%. Similarly, the amount of ETH flowing out of cryptocurrency exchanges has decreased by 7.96% over the past 30 days.
DeFi in Ethereum
DeFi (Decentralized Finance) is a popular use case for Ethereum. It has a large market share in DeFi. Here are some key statistics related to DeFi on the Ethereum network:
- As of March 2, 2023, the total value locked in DeFi protocols on Ethereum is 29.46 billion dollars.
- The top three DeFi protocols on Ethereum, in terms of total locked value, are Lido, MakerDAO, and Curve.
- Ethereum currently holds a dominant market share of 59.04% in the DeFi space, with other blockchain networks such as Binance Smart Chain and Tron also gaining traction in recent months.
NFTs on Ethereum
Ethereum is very popular when it comes to the Non-Funglible Token space. You can refer to some key metrics associated to NFTs on the Ethereum network:
- In the last 30 days, the total sales volume of NFTs on Ethereum is 909.393 million dollars.
- The top three NFT marketplaces on Ethereum, in terms of sales volume, are Blur, Opensea, and X2Y2.
- The top three NFT collections on Ethereum, in terms of sales volume, are Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), and Azuki World.
- Ethereum currently holds a dominant market share of 65% in the NFT space, with other blockchain networks such as Flow and Tezos also gaining traction in recent months.
Play to Earn Games on Ethereum
P2E (Play-to-Earn) games are a new trend in the gaming industry, and Ethereum is emerging as a popular platform for these games. On the gaming front, Ethereum is lacking a little bit primarily due to the gas fee. Since play to earn gaming is going to be the next big thing, the blockchain that manages to capture this area will see massive growth in the future.
- As of now, there are 319,958 users playing P2E games on the Ethereum network.
- The total number of transactions related to P2E games on Ethereum is 968,105.
- The two most popular P2E games on Ethereum are Axie Infinity and Illuvium. Axie Infinity is a blockchain-based game that allows players to earn cryptocurrency by breeding, battling, and trading digital creatures called Axies. Illuvium is another Ethereum-based game that involves collecting and trading digital beasts called Illuvials.
- Ethereum currently holds a market share of 23% in the P2E gaming space, with other blockchain platforms dominating the space currently.
Noteworthy Achievements and Embracement in the Future
Ethereum has been a part of the industry for quite a while and has achieved many milestones. How the network does in the future is also something that we can speculate on.
- Last year, CME introduced revolutionary ETH futures and options.
- Ethereum has undergone a full-fledged transformation from Pow to PoS post-merge.
- An impressive 14.2% of the entire ETH supply has been pledged thus far. This might increase in the future which will put pressure on the price. This will in turn result in the prices rising further.
- Ethereum is implementing diverse L2 rollup solutions for seamless scalability. With the rise of the popularity of Arbitrum and Optimism, Ethereum is also simultaneously increasing.
Adoption in the Future
The implementation of negative token emission is poised to catalyze robust institutional adoption for #ETH in the coming years. The token economies have become very strong and the big players in the market are buying Ethereum instead of bitcoin. Hence we can suspect a rise in institutional buying pressure in the future, and whenever the bull market will come, we will witness significant coalitions.
Ethereum is gearing up for its next major upgrade, EIP 1559, which promises to significantly diminish L2 rollup costs, making them more scalable and further propelling Ethereum’s adoption.
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To sum up, currently, we do have quite an optimistic point of view on Ethereum. We predict that the fast growth of the network of the Ethereum blockchain will inevitably navigate the forthcoming implementation of negative token emissions for ETH. This could potentially result in a supply shock at subsequent phases, leading to increased demand and higher prices for digital assets. At the end of the day, we can see that it is a very fundamentally strong network, that gets its basics right. Ethereum has contributed to massive developments in the digital assets space.
Furthermore, given Ethereum’s dominance in the emerging Web3 ecosystem and the increasing demand for decentralized applications and smart contracts, we believe that ETH has the potential to surpass BTC in market capitalization in the near future. It has a higher risk reward and is likely to be adopted by users even more.
However, market conditions and regulatory changes may impact these predictions and should be closely monitored. Do not rely on here say while making financial decisions and always remember to do thorough research on your own. This way you will be protected in the market and will be able to reap huge benefits.