ETHer Fake Out Or Break Out?

ethereum Jul 17, 2022

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On July 14th, Ethereum developers announced the merge date with the Beacon Chain has been set for September 19. On July 16, Ethereum broke out to $1,350 and set a new 20-day high. Is this a bear-market fake out? or Is it a break out and a shift to a bull market?

I think that the probability is that it is a breakout, and let me tell you why.

First, pessimism is at its maximum! People are waiting for $10,000 BTC, and $600 ETHer. For example, take a look at the Bloomberg MLIV Pulse survey. Out of 950 investors surveyed, 60% expect Bitcoin to go to $10,000 before it goes to $30,000. “Which level will Bitcoin trade at first? $10K or $30K.” 60% said $10,000. Also, 20% said the crypto assets are worthless.

Allow me to ask you some questions. Are Ethereum valuations excessive at this time? At $1,350 would you say that Ether is overvalued or undervalued? Which do you think is a more appropriate value for Ether? $600 or $2,400?

I tend to think that $2,400 is a more appropriate value than $600 for Ethereum. Perhaps you think that I am overly optimistic. But, I would characterize a $600 Ether price as extreme pessimism. Of course, I could be wrong, but I think that a $600 Ether price is highly unlikely in 2022. On the other hand, I think that a $2,400 Ether price is highly likely in 2022.

When pessimism is at extreme levels, like they are now, it's a great time to be a buyer.

If I spent $10,000 on Ether today, could I lose half of my investment in the next 30 days? Yes, I could. But, what is the risk of Ether going to $600? I think it is low. What is the risk of Ether going to $2,400 in 60 days? I think it is high. So, the risk-reward ratio is weighted to the upside. In my opinion, there is a low potential of downside, and a high potential of upside.

Broad consensus, like we see in the Bloomberg survey, that crypto markets are headed down further, usually reflects that most investors have already acted. They have already sold. And, the current prices reflect that sentiment. When the majority is fearfully selling, we should stand on our conviction and start buying.

My first point is that pessimism is at an all-time high.

Second, we still have a market that is dominated by retail investors. The institutional investors have not come into the crypto markets in great numbers. The reason for this is the lack of regulations. We do not know if Ether is a security or a commodity. We do not know if Ether falls under the purview of the CFTC or the SEC.

Also, the SEC and FASB (or the Financial Accounting Standards Board) are holding back public companies from investing in Bitcoin and Ethereum. There are not any ETFs in the US for investing in Bitcoin or Ethereum. So, institutional investors are still on the sidelines.

The crypto market is still dominated by retail investors. So, Dogecoin, Shiba Inu and Litecoin are still in the top 20 crypto assets by market cap.

Third, a recession might not be a sure thing. Yes, GDP shrank in the US in the first half of the year, but jobs grews. Consumers are very negative about inflation, but retail sales are up–they are still spending. The risk of a recession is a 50-50 chance. And, many would say that it is less than a 50 percent chance. The Citibank CEO said, “Little of the data I see tells me the US is on the cusp of a recession.”

Fourth, the Ethereum merge is coming on September 19. The merge will be good for Ethereum and for crypto in general. And, I think that the merge is likely to kick off the next bull run for crypto assets.

Post merge, Ether issuance will drop by 89%. So rather than 15,000 new ether coming into existence every day, we will have 1,600 new ether coming into existence every day. So Ethereum inflation will be cut by 9x. Ether will become 9x more scarce than it is today post merge.

As Uganda discovers gold deposits worth 12 trillion USD, Ethereum is becoming 9x more scarce. And, scarcity usually is accompanied by an increase in price.

Finally, post merge, staking rewards for Ethereum are expected to double. According to Coinbase research, rather than 4% to 5% stacking rewards that we are seeing today, we are looking at 9% to 12% staking rewards, post merge. So rather than people pulling out they're ethereum from the staking contract, we will likely see inflows.

Again, allow me to ask you some questions. What are the odds that Ether will decrease in value over the next year? What are the odds that Ether will increase in value over the next year? I would say that the probability is that Ether will be higher in a year from now. This probability that Ether will be higher in a year from now greatly exceeds the probability of Ether being lower a year from now.

Let me know what you think in the comments below. 


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