Ether, the cryptocurrency of the Ethereum network, led the 2017 cryptoeconomy bull run in playing a central role in the ICO boom.
Now, some analysts are projecting the second largest crypto may be poised to do the same in 2020, this time powered by the rise of Ethereum’s decentralized finance sector and growing enthusiasm around the arrival of staking later this year.
On February 12th, traders’ brows were accordingly raised when the ETH price surged from $236 to as high as $275, an intraday climb of 16.5 percent. Daily trade volume around the coin spiked to $24 billion USD, up from the $16 billion mark seen across each of the prior six days.
Ether’s latest rise to $275 puts the asset up against USD by 34 percent on the week, by 90 percent on the month, and by 123 percent over the last year. Against the ecosystem’s benchmark bitcoin (BTC), ETH is presently up 23 percent on the week and up 48 percent over the last month
Economic Bandwidth for DeFi?
For some time, more than a handful of analysts have said that the ETH price seemed to be lagging behind Ethereum’s increasingly impressive fundamentals. One aspect of those fundamentals includes the network’s blooming DeFi arena, of which ETH is the keystone asset.
Accordingly, ETH’s fresh price climb is partly from more people coming around to its potential, and relatedly because growing DeFi activity generates demand for ETH, i.e. utility pressure.
That latter concept, recently popularized by the phrase “economic bandwidth,” has recently become a central point of focus for Ethereum analysts like Ryan Sean Adams. In a December 2019 issue of his Bankless newsletter, Adams argued that the ETH price was tied to the amount of activity ETH was powering and could power:
“Money protocols in the Ethereum economy … need high economic bandwidth—so they need a high value ETH. And they’re using ETH’s bandwidth to grow. Scaling Ethereum isn’t just scaling the [transactions per second] of the network. It’s scaling the economic bandwidth of ETH.”
Thus with regard to DeFi, the space’s top dApps are already creating demand for a considerable chunk of ETH’s economic bandwidth, meaning that if that demand keeps growing, the ETH price seems generally poised to as well. It’s one reason why the DeFi arena is being closely watched by some traders.
“Towards the latter half of 2019, DeFi’s consumption of Ether’s economic bandwidth experienced substantial growth and is now consuming nearly 3% of the asset’s total economic bandwidth,”
Lucas Campbell, an analyst at DeFi Rate, noted in separate Bankless issue from last month.
The Staking Factor
This year, the Ethereum project is set to undergo its biggest evolution to date with the kick off of the multi-phase Serenity upgrade.
The first stage of that upgrade, “Phase 0,” will launch a foundational form of the new so-called Ethereum 2.0 blockchain, which will activate with proof-of-stake (PoS) consensus. This shift to PoS is notable because it will allow ether holders — those holding 32 ETH, specifically — to secure the Ethereum network not by mining but rather by staking their staking their ETH in a special smart contract.
This evolution is notable because it will bring the yield factor into play: Ethereum stakers will be rewarded with block rewards — a.k.a more ETH — to secure the network, e.g. like how Tezos “bakers” currently get paid in XTZ to secure their platform.
For now, it’s impossible to tell how big demand for staking will be when Phase 0 launches, but it’s safe to say it should be considerable if recent interest around other PoS projects like Tezos and Cosmos is any indication. To this end, the growing intrigue around Ethereum staking may be partially responsible for the new optimism acutely hitting ETH markets.