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How Ethereum Fundamentals Could Strengthen Against Bitcoin

2 mins
Updated by Ana Alexandre
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In Brief

  • Ethereum fundamentals are strengthening.
  • More transaction value and higher network fees.
  • London upgrade will include EIP-1559.
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Crypto markets are still indecisive with the bulls and bears battling it out, but the next few months could be very good for ethereum (ETH), according to one investor.

Crypto assets have bounced back into their range bound channel again today, following the bullish news out of El Salvador. Bitcoin (BTC) is still down 43% from its all-time high, however, and the market sentiment appears to have turned bearish overall.

Ethereum has not fared quite as badly with a 39% decline from its peak price to current levels which are around $2,580, according to CoinGecko. Usually, the rest of the crypto market plunges deeper than bitcoin during these heavy pullbacks.

Public markets and seed investor Daniel Cheung has lent some of his insights into ethereum’s fundamentals and why he thinks it could out-perform bitcoin, over the coming months.

“ETH and ETH-DeFi will have an unprecedented run over the coming months given: ETH could flip BTC soon based on strong fundamentals.”

Bullish fundamentals

The first argument the investor makes is that ethereum fundamentals have never been stronger, when compared to bitcoin. This should result in a narrowing of the valuation gap, as ETH market capitalization grows.

At its peak, ethereum market cap hit $500 billion. To put this into perspective, that is the same as bitcoin’s was at the end of December 2020.

“As ETH’s valuation rises, this should be a rising tide scenario, and DeFi will benefit the most given it is the fastest growing subsector within the ETH-ecosystem.”

Ethereum now settles four times more in gross volume, including stablecoins, than bitcoin, which is being driven by the parabolic rise of decentralized finance, he added. DeFi will not be slowing down, with major protocols launching upgrades and implementing Layer 2 scaling.

The investor added that fundamentals of major lending protocols and yield aggregator protocols on ETH have been incredibly resilient during this volatile period.

Ethereum is also generating much more than bitcoin in terms of transaction fees, which isn’t so good for users, but is for network value. Cryptofees currently reports that ethereum generates over 80% more than bitcoin in seven-day average fees.

EIP-1559 inbound

The market is also currently failing to price in the benefits of EIP-1559, which is estimated to launch with July’s London update. Though this will not directly reduce gas fees when demand is high, it will have an effect on deflation, as they get burnt.  

The final argument Cheung makes is that institutional investment has never been greater and this is unlikely to slow down given the above fundamentals.

At the time of writing, ETH had made 2% on the day and was trading at $2,540, over 900% higher than its price this time last year.

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Martin Young
Martin Young is a seasoned cryptocurrency journalist and editor with over 7 years of experience covering the latest news and trends in the digital asset space. He is passionate about making complex blockchain, fintech, and macroeconomics concepts understandable for mainstream audiences.   Martin has been featured in top finance, technology, and crypto publications including BeInCrypto, CoinTelegraph, NewsBTC, FX Empire, and Asia Times. His articles provide an in-depth analysis of...