What’s up with Ethereum, will it go back above its all-time high and beyond, or is this the most we’ve seen for this bull run? When is eth 2.0 going to be completed anyway, and what impact could this have on price? Am i still bullish in my video today I’m going to attempt to answer all of these questions. I’ll also give you some of my own thoughts on where eth could be headed.
So don’t go anywhere. Sorry, folks, I really must remember to switch this off, I’m so sorry, hello, guy, meow mukka is cousin, Barry from barking how’s. It going sunshine, barry, hello, nice to hear from you, yeah I’ll, get right to it. Guy me old, china you’re a busy man. I’M a busy man things to see people to do.
You know how it is uh. Okay, so i met some geezer down the battle cruiser last night. What said you were in the old financial advice game been watching your channel any so i thought to myself. Yes, please I’ll have some of that, so i picked up the old dog and bone, and here we are what you got for me. Ah, sorry, barry the the chap you talked to must have got the wrong end of the stick.
You see this channel is just for education and entertainment, I’m afraid I’m not qualified to give financial advice, I’m just a chap on youtube who uh, who loves crypto? That is too bad mile muka too bad. Well, let’s get a couple of points in one of these days and have a proper now love to stay in chat, but you know it is of course yeah well good to chat, barry catch up soon, right, oh totally, dozie prep! Ah, yes, please love! I’ve got a mouth drier than gandy’s flip-flop over here.
Ah cousin berry there’s a reason we haven’t stayed in touch anyhow. I should add that, as well as not being a financial advisor, i also hold eth as part of my personal portfolio. Just so, as you know, also, if you want to see more from the coin bureau and maybe meet some other gruesome members of my extended family, then subscribe down there and give the old bell a ding. Dong too then youtube lets. You know when i release another video time stamps in the video timeline.
If that’s your thing, but if you watch till the end, then this video does better and i feel happier. Okay, that’s the waffle out of the way, let’s crack on. Arguably, the most consequential upgrade to ethereum since its birth is the move to ethereum 2.0. This is due to come to a head this year, as we move on to the next stage of the upgrade the proof of stake merge.
Now. I think we need a quick update on what exactly is being upgraded with eth 2.0, so that we’re all on the same page, it’s also important to clear up any misconceptions that are out there about eth 2.0, so the eth 2
0 upgrade officially got underway in december of 2020, when the developers launched what is called the beacon chain. This was a separate ethereum network that would function as the eventual proof-of-stake blockchain it stores and manages the registry of validators and coordinates the shard chains.
The next stage of the eth 2.0 roadmap is the proof-of-stake merge. Now this was originally planned for last year, but was pushed back to this year. Quite simply, the merge is when the current ethereum proof of work chain will merge with the beacon chain. This will mark the end of the proof-of-work consensus mechanism, and miners will no longer be crunching crazy numbers.
Instead, you’ll have network validators who will stake eth in order to propagate blocks. There are, of course, many benefits that will come from this. One of these is the fact that maintaining the ethereum network will be more environmentally friendly. The energy used in order to maintain a proof-of-work blockchain is one of the biggest sticking points for those cryptocurrencies that use them. For example, according to statista, the energy needed to push through one ethereum transaction is 238 kilowatt hours.
The energy required to process 100 000 visa transactions is only 148 kilowatt hours, so the move to proof of stake will make ethereum a lot more green. Now. This has important implications which i’ll cover in due course but and here’s the most important point. The proof of stake. Merge won’t immediately lead to a massive increase in scaling.
That’S because it’s all still one blockchain that will have to process transactions in a sequential manner. The massive scaling component of eth 2.0 comes with the launch of sharding. Yes, that’s sharding with a d just before you guys jump on those comments. Now, for those who don’t know, sharding is the concept of breaking up the ethereum blockchain into a number of different?
Well, shards: it’s a concept: that’s been used in database scaling for a number of years and is now being implemented in blockchain technology as it relates to ethereum. These separate shards will be their own independent blockchains called shard chains. 64 shard chains will spread the ethereum network load and allow different transactions to be propagated. Concurrently. Quite simply, it’s parallel computing.
Now there isn’t time to go into the exact mechanics of sharding here, but i’ll leave links to some resources in the description to give you a bit more info. But the point is that the crazy scalability improvements that you’re hoping for are only likely to come after. We transition to sharding, okay, so that’s a short overview of eth 2.0. But how far are we along well when it comes to progress?
Things are moving steadily, albeit slowly. Firstly, in regards to the beacon chain that has been live for over a year now and the amount of eath staked in it continues to climb there’s currently over nine million eath locked up here on the first birthday of the beacon chain. Last year, vitalik released an updated roadmap for ethe 2.0. It’S really interesting and i’ll leave a link to it below.
Basically, it shows what we can expect to be built on eth 2
0 post the merge we have the surge, verge purge and splurge seems the v-dog is as much of a poet as yours. Truly now, a few days after this tweet, he also released a blog post that took us through his vision of the ethereum 2.0 endgame. He spoke of developing trustlessness and censorship resistance to levels, according with his accepted standards, that post is also linked to below by the way anyway. This should give you a comprehensive picture of what we can expect on the ethereum network in the coming years.
The merge is just the first step towards that dream of a decentralized computer which we all hope ethereum can one day become, but baby steps. The merge comes first about two weeks after vitalik released this. The ethereum devs launched the kinsugi test net. This was a quote longer living test net that would allow developers to experiment with ethereum in the exact manner that the network would operate after the changeover. These devs could, for example, test certain defy apps and tools and the eth developers encourage them to give it a fair crack of the whip.
If you are a developer, i’ll leave a link to it in the description, so you can give it a spin yourself and fun fact: kinsugi is the japanese art of putting broken pottery pieces back together with gold, and i couldn’t think of more apt metaphor: anywho. There was a lot of testing of kintsugi over the holidays and on the first dev call earlier this january senior eth 2.0 researcher tim baiko gave an update. There were a few minor issues here and there and work began to fix them according to tim’s tweet thread. There are a few more updates that need to be worked on before the merge they’re, also going to launch one more merge test net, which quote may be the last one prior to the existing going through the merge okay.
So that’s from one of the senior devs on ease 2.0. However, there were many in the community who were slightly disheartened by comments that vitalik made in a recent episode of the bankless podcast. This was to discuss that roadmap that i mentioned earlier in it. The hosts asked him to rate the progress that ethereum had made so far in the past six years towards the end game that he envisions.
He said that it was 50 there. Now many on crypto twitter appear to have been thrown off by that statement, as it would of course imply that it would take another six years to realize vitalik’s full vision. However, i think that the fudd was misguided. That’S because the statement was in relation to the entire road map of his, the merge was only the first step, one which will hopefully be taken soon. Moreover, he claimed in that same podcast episode that once the sharding was implemented, then they would be 80 there on chinese social media, for example, there were some rumors circulating that eth 2.
would be delayed another year. This was based on some story on wechat. Now, when asked about this in a popular ethereum, wechat group vitalik said in chinese that he didn’t say that and for those of you who didn’t know yes, vitalik speaks chinese having taught himself a few years back, because that’s what geniuses do right, i’ll upload this interview, He did in chinese from about three years ago, if you want to hear him in action, okay, so this then begs the very important question when merge. Well, i happen to think that it’s likely going to be in q2 of this year and if that does indeed come to pass, what exactly could this mean for the price of eth well, putting aside sentiment and speculation for the moment, it’s important to look at the Economics of the merge and what it does to eath demand and supply that old chestnut. Firstly, there’s the question of what it will do to all that: eth, that’s been locked up once the merge has happened.
Could all those who’ve had their east locked up for years? Finally, be able to withdraw and hence sell it. Well, not quite that’s because there will be a limit on the exit rate of the validators. This will be done in order to make sure that there’s not too much of a rapid change in the validator set. So what this means is that you only have a max of four validators, unlocking their eth every epoch, which is every 6
4 minutes now i won’t go into all the calculations here and i’ll link to this handy, reddit post.
That does it for us, but basically based on these exit rates and a few assumptions around the amount they are unstaking. This will mean about 28 800, each hitting the market per day now, assuming a trading volume of 10 million each per day and a circulating supply of 116 million slightly more now. That would imply the following: only 0.29 percent of current trading volume hitting market less than 0.02 percent of circulating supply hitting the market.
Now that doesn’t sound like a market-crashing amount of eth that will be unlocked. Moreover, this makes the assumption that all validators will want to exit. There could be an equally strong number of institutions, whales, miners and other market participants who were eager to stake, but only once the merge went through, they may want to join the validated queue. So it’s entirely possible that the amount of heath being locked to stake could exceed the amount that is being withdrawn beyond this, though, there’s also some research that has looked at the economics of it post-merge. Here we have a recent report from coinbase institutional.
It basically takes a look at what eth2 could mean for both ethereum and other layer ones in the ecosystem. Now the main section i want to focus on here is the one that talks about the merge monetary policy. What it says is that the merge could lead to efficiency gains as more eth will end up being staked than is being created. Moreover, it makes the point that miners are, of course, forced sellers they have to sell in order to meet expenses to pay for the mining, rigs and electricity. However, running a validator is much much cheaper and replacing miners with fewer validators could reduce that eth issuance by up to 90 percent.
The report claims it also estimates that this will lead to a fall of between 30 and 50 percent in the amount of eth. That’S being sent to the exchanges now, of course, the less east hitting exchanges, the less cell pressure to impact on the price. Now this is pretty bullish for me, but of course it doesn’t change the fact that the merge won’t drastically improve user experience. This is something that the researchers also point out, however, in the interim and beyond one of the best solutions for user adoption of ethereum is, of course, those layer. 2 protocols, the ethereum layer, 2 world, is moving, so damn fast that it’s sometimes hard to keep track.
Optimism, arbitrary polygon, starkware loopering, to name but a few all of these solutions using roll-up technology such as zk, roll-ups or optimistic roll-ups. Now there isn’t time to go into the nitty-gritty of the tech here, but feel free to watch my video on ethereum scaling. I also show you there how to use those layer 2 solutions, so it’s definitely worth coming back to later i’ll leave a link in the description for you. The point is that there is an insane amount of adoption in the layer 2 space. Nearly all dapps are now deploying layer, 2 solutions and the tvl total value locked in these protocols is reaching record-breaking levels.
For example, according to the website, l2 beat the tvl in all of layer. 2 is now standing at 6.36 billion dollars. This is up from a little over 100 million dollars only a year ago. Some of these layer, 2 solutions provide a user experience in terms of fees and speeds that is even challenging the status of large, centralized exchanges.
For example, last year at the peak of dex trading, the volume traded on dydx’s layer 2 protocol exceeded that of coinbase. For a day, it’s crazy right now. According to that aforementioned coinbase institutional report, these layer, twos, could be the deciding factor of whether any eth killers will be killed. First. Moreover, there’s a common misconception that these layer twos could become obsolete when the eth 2.
upgrade is complete. On the contrary, sharding of the main ethereum chain will compound their scalability. It will allow the roll-up solutions to take full advantage of more ethereum block space. To quote the researchers quote, this would be crucial for allowing the network to potentially scale to billions of users in the long run, processing tens of thousands of transactions. Quite simply, these layer, two solutions are core to ethereum’s future.
Take it from tim, okay. This is all great, but why should this impact the price of eth? Well, let’s not forget that, in order to enter many of these roll-up solutions, you have to lock up eth. This is eth, that’s been taken off the market and will only ever come back once users exit from the bridging smart contract, the larger that tvl, the less ether, could be hitting the exchanges beyond this, though, the more daps and users on layer, 2 platforms right now, The more that are likely to eventually use the eth main chain when that full scaling capability is released. It’S a lot easier to port over a dap that was built on arbitrarum to ethereum, for example, than it is to move one over from solana or avalanche.
The point is infrastructure built on eth layer. Twos is positive for ethereum in the words of starkware ceo uri kolodny quote today, ethereum could be viewed as manhattan in the middle of the 17th century. Farms and manufacturers are all producing there. What we are doing is we are the skyscraper technology that uses the same footprint and now serves many many more people. We think this can be built to any height, that’s needed!
Imagine if you had bought a plot of manhattan land in the 17th century. So now that you’ve had your hit of hopium, i want to quickly shift gears to another, potentially strong catalyst, driving investment into eth post, merge and that’s esg. For those who don’t know, esg stands for environmental, social and governance. It’S the new vogue in institutional, investing where large money managers only invest in those companies, assets or ventures that are seen as forwarding these goals gone are the days when capitalists main goal was roi. Now it’s all about changing the world.
Am i right jokes aside, esg investing is a powerful force driven by some of the largest money managers on wall street folks like larry fink, the ceo of blackrock, the largest fund of them all esg. Investing is a massive threat to cryptocurrencies like bitcoin, that rely on so-called environmentally harmful proof-of-work mining. Now i talked about this in much greater detail in my video on the esg threat to crypto, and you can watch that by hitting that link in the top right now, irrespective of whether you think this environment fudd is justified, you cannot deny that it’s the prevailing Narrative from mainstream news articles to political talking points and more, in fact, the fud was so strong that tesla stopped accepting bitcoin payments last year on account of it. Now this is not going to go away anytime soon, and this means that there will be a natural cap on the amount of institutional capital which will flow into proof-of-work cryptocurrencies. However, it’s a completely different kettle of fish when it comes to proof-of-stake cryptocurrencies.
That’S because the energy costs of running a validator are negligible. In fact, it’s almost irrelevant because all you’re using is a standard server, a server, that’s already optimized for energy use sitting in a data center and, unlike with proof-of-work mining, you don’t need to use exponentially more energy in order to maintain that hash rate over time. Once ethereum transitions to proof of stake on the merge, it will be seen as a way more environmentally friendly option. One. That’S a lot more palatable for institutional investors who are dying to jump into crypto, but are worried about the shade they’ll get if they invested.
In proof of work coins now, may i remind you that blackrock has over 9
4 trillion dollars under management and nearly all of those asset managers that make up the top aum have their own esg mandates and funds, or how about the fact that so many companies on the s p 500 now have to factor esg into their corporate strategies. If they are going to consider using decentralized tech in their operations or payments, they will no doubt turn to those cleaner options and post merge. Eth 2.0 is the clean green money, making machine dominating the web3 scene and speaking of which you have to check out my video on web3, which i’ll leave in the description for you. It’S well worth it anywho.
I know this bullish. Ethe 2.0 talk sounds all good, but we are still not there, and prices are currently pretty lackluster, so what’s happening right now. Is there reason to be bullish at the moment? Well, let’s examine what’s happening on chain ahead of that merge.
There are a number of things you can glean from on-chain statistics. One of the most important of these is what other holders are doing and what they’re holding starting off with perhaps one of my favorites, and that is the balance of eth in exchange wallets. The headline says it all and it basically shows the total amount of eth that is now sitting on these exchanges. As you can see, this is near all-time lows. This is bullish because it shows that those who are currently selling their eth make up an increasingly smaller proportion of the general market.
The current price of eth is the value that is determined by a small subset of all eth-hoddlers. This is further confirmed by the low amount of exchange deposits taking place. People are not sending their eth2 exchanges and hence they are not planning to sell okay, so that’s exchange wallets, but what are the whales doing? Well, according to some data from sentiment, the top 10 non-exchange addresses now hold over 25 million eth. You can even see the inverse relationship we have here with the top exchange balances.
It’S pretty stark, so it’s quite clear that the big boys are stacking eth. But what about other market participants how about miners? Surely they also have a unique perspective on where they think eath is going well? According to that coinbase institutional report that i talked about earlier, they are stacking as well. Ever since eip1559 went live, the net eth flows into minor wallets have mostly been positive.
If you look at the eight months that preceded that flows were broadly flat, i.e inflows met outflows. Perhaps it could be a situation where these miners are waiting until the merge in order to switch off their machines and move over as a validator. It will allow them to continue their operations securing the network, albeit without those costly mining rigs. If miners do start to move over, then these could be the flows that counteract any of those validators who are looking to withdraw their stake.
Teeth less eath on the market of course means less eath available for sale. So, based on these on-chain statistics, i can’t help but feel that those in the know know oh and by the way. If you want to know all about on-chain analysis, then i’m sure there are videos out there that can help you with that. That’S it for most of my analysis folks. However, i do want to share a few of my personal thoughts.
Firstly, i will say that i am currently disappointed in the performance of eth so far this year, then again, it’s not an eth only issue. The entire crypto market has been dragged through the mud together with the rest of the financial markets, thanks jerome, but it’s important to be able to separate out fundamental value from price. Yes, eth 2.0 has been a whipping boy for some time. People are growing impatient as to the progress.
This is understandable, but it’s equally important to appreciate just how much work is being done behind the scenes. Headlines and click bait don’t reflect the code commits, moreover, in the interim there’s a plethora of layer, 2 scaling solutions that are building a great deal of value on the ethereum network, value for their own blockchains and value for the base chain. Value. That’S likely to exponentially multiply when sharding is complete investors, whales and miners are stacking and once eth transitions to a much cleaner, proof-of-stake consensus. This could provide the impetus for an ocean of capital to flood in now.
Having said all of this, it’s as important as ever to highlight that there are risks. The merge is the biggest upgrade that ethereum has been through. Yes, it’s been rigorously tested, but when you have an upgrade that impacts 374 billion dollars of value, the stakes are incredibly high. Moreover, there are no guarantees that the merge goes through before this market cycle comes to an end. Eth 2
0 delays are commonplace and jerome is lifting those interest rates.
The taper tantrum is underway and, of course, we cannot be oblivious to the threat of other incredibly strong layer, 1 blockchains avalanche solana, phantom terra and cardano all are competing for a price of that eath pie. I hold some of those as well as a hedge for my eighth position, but of course there’s a reason why that eighth position is the largest in my portfolio, and there is a reason i bought eth in the dip a few weeks ago. It’S my judgment call based on all the information i’ve just presented. Now you have to make that judgment call for yourself. That’S it for the video chaps and chappets i’m keen to have some of your feedback, though, when do you think the merge is likely to happen?
Do you have any thoughts on my analysis, fire those comments down below also while you’re down there? I have something extra special for you. What chart it’s me again, goldie, don’t laugh, go on, don’t he giving it all the blah blah blah right any road. If you want to see more of good old guy, then never butchers at his dedicated socials page down there yeah it’s got his telegram insider channel where he gives it large, with daily market analysis twitter with all the latest. You know twitter stuff, instagram for photos and that and tick tock with behind the scenes malarkey and that macy bird four.
Finally there’s his weekly newsletter, what’s full of crypto tips and you can have a gander at his personal portfolio there as well. Now i told him to jump on in a floaty baby new coin, but did he listen? Of course he didn’t silly sausage and if you want to grab yourself some coin bureau, clobber then jog on to the coin bureau, merch store and pick yourself up a dicky dirt, a kuala lumpar or a jade goodie. It’S up to you like and subscribe too or i’ll, send the boys around right. Let’S see a lot tata,