Ether (ETH), the world’s second-largest cryptocurrency, has outperformed its larger rival bitcoin (BTC), with a 33% gain year-to-date. This rally is being driven by catalysts other than the potential approval of a spot exchange-traded fund (ETF), broker Bernstein said in a research report on Monday.
Firstly, the ether supply is deflationary and has not increased since the Ethereum blockchain’s shift to a proof-of-stake consensus model in September 2022, the report said, adding that this fact is being underappreciated.
The amount of ether locked up is also an important factor. Bernstein notes that ETH held on exchanges is at an all-time low of 11%, a sign that more of the cryptocurrency is being locked up. There is ETH locked in staking pools, decentralized finance (DeFi) smart contracts and on layer-2s.
“With the growth of ETH transaction fees based on higher blockchain activity (more DeFi, NFTs, tokens), more ETH holders are incentivized to stake their ETH,” analysts Gautam Chhugani and Mahika Sapra wrote.
“And as financial smart contracts on Ethereum Layer 2 networks scale (Arbitrum, Optimism and Polygon), more ETH finds itself locked in smart contracts, leading to a reflexive feedback loop of increased demand,” the authors wrote.
The Eigen layer, a protocol used for restaking ether, has also attracted more staking demand, as “ETH (re)stakers gain from new tokens/services launched on Eigen,” the note said.
Since the start of 2023, new layer 2 network
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Author: Will Canny
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