Ethereum stood on the 4,000 USD/unit mark, continuing to hit a record high, with a cumulative increase of over 440% since the beginning of this year.

Regarding the rising trend of Ethereum, a report by JPMorgan Chase analyst Joshua Young on April 27 was “Why Ethereum is outperforming?” “Provides an explanation for the title. The report believes that, compared to Bitcoin, the valuation of Ethereum may be less dependent on the demand for leverage. This is a technical impetus and occasionally an important impetus.

Not long after that, Nick Panagirtzoglou, another analyst at JPMorgan Chase, released the latest report on Friday, acknowledging that “the recent rise of Ethereum is particularly impressive” and expounding the logic behind the bullish Ethereum.

In the chapter discussing Ethereum, the report mentioned that although the price of Bitcoin has been hovering below $60,000 recently, the entire cryptocurrency market has expanded significantly in recent weeks under the leadership of Ethereum and other small cryptocurrencies.

The fact is that both retail and institutional demand indicators have been accelerating in recent times. After the launch of 4 ETFs in April, the flow trajectory of Ethereum funds has improved. If you compare these indicators with Bitcoin, it looks even more impressive.

When talking about the logic behind the rise of Ethereum, Nick Panagirtzoglou mainly comes from six factors:

1. Last week, the European Investment Bank (EIB) used the Ethereum blockchain to issue 100 million euros of two-year zero-coupon digital notes. This is its first digital bond issuance. The transaction designs a series of bond tokens on the Ethereum blockchain, and investors use traditional legal currencies to purchase and pay for security tokens. The European Investment Bank’s move is undoubtedly of great significance, and it has reached the standard for the recognition of the Ethereum blockchain by a mainstream official institution.

2. Purpose Investments of Canada launched the first Ethereum ETF (ETHH) on April 20. In the same month, three Ethereum ETFs were launched one after another.

3. Due to the EIP 1559 protocol that will be introduced this summer, the supply of Ethereum has declined structurally. The EIP 1559 protocol mainly changes the calculation method of transaction fees by a large margin. By introducing a basic fee that is automatically calculated, the transaction fees on the Ethereum blockchain are more predictable. According to the explanation of the JP Morgan Chase report, once paid with Ethereum, this fee is immediately burned, which means that the supply of Ethereum will decrease in the future.

With the circulation of Ethereum growing at a rate of 5% per year in the past three years, the theoretically unlimited supply of Ethereum has always been a concern. Burning Ethereum through basic fees, the EIP 1559 protocol may reduce the annual change of Ethereum circulation to 1-2%.

4. Investors’ great attention to ESG has shifted their attention from the energy-intensive Bitcoin blockchain to the Ethereum blockchain. It is expected that Ethereum 2.0 will become more energy efficient by the end of 2022. Ethereum 2.0 has transformed from an energy-intensive “Proof-of-Work validation” to a “Proof-of-Stake”. Therefore, less computing power and energy consumption are required to maintain the Ethereum network.

5. In recent months, the rapid growth of NFT (Non-Fungible Token) and stable coins has increased the use of landslides. Ethereum has dominated the DeFi (decentralized finance) ecosystem.

6. The final report mentioned that rising U.S. bond yields and the final normalization of monetary policy are all working together to put downward pressure on Bitcoin, which is digital gold. Ethereum obtains value from its applications, from DeFi to games, from NFTs to stablecoins, so it is not as susceptible to higher actual yields as Bitcoin.

But the report also warns of potential risks. In the past few weeks, the market value expansion of the cryptocurrency market has focused on Ethereum, Dogecoin, etc. In the past month, the market value of Bitcoin in the entire cryptocurrency market has dropped from 60% to 45%.

Panigirtzoglou believes that this decline in share is due in part to the increase in institutional interest in Ethereum, and to a certain extent, it is also driven by the demand for other cryptocurrencies for personal investment. This is somewhat similar to the bubble that appeared in the Bitcoin market in December 2017, when Bitcoin’s market share fell from 55% to 35%.


Picture source: JPMorgan Chase Picture source: JPMorgan Chase

ZeroHedge mentioned that some people do not agree with this view. Some people who experienced the Bitcoin decline in 2018 had nothing to do with retail investors at the beginning, but the Fed’s tightening policy. The Fed raised interest rates three times in 2017, and 2018 The interest rate is raised four times a year. In other words, a huge difference between now and then is the Fed, which has no plans to reduce QE and raise interest rates. If the comparison is really based on the Fed’s last rate hike cycle, then cryptocurrencies such as Bitcoin and Ethereum may not peak until 2024.