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The Ethereum Price Is Exploding Again. You Should Definitely Know Why.

by | Jul 25, 2022 | Crypto, Money

Ethereum is one of my favorite investments of all time.

It’s so complex that most people don’t understand it. That creates a barrier to entry. There’s a certain number of research hours you have to do before any of it will make sense.

It’s a network that Web3 apps get built on. It’s the first platform to host decentralized finance. It’s the platform most of the world’s NFTs use. It has so much utility that the future use cases are limitless.

When the markets crashed at the end of last year everything fell in price. The stock market fell too. In the last week, we’ve seen the Ethereum price pump again. Many are wondering why.

The big event that’s responsible for the Ethereum pump

Ethereum is just software.

When the way that software works fundamentally changes for the better, at its core, people get excited. That’s about to happen to Ethereum. The platform is switching from proof-of-work to proof-of-stake.

All this means is the way the network is secured will shift to be faster, cheaper, better. Before a major change happens there are several phases of testing to occur. The last big test for Ethereum happened and was successful.

This signaled to the market that the long-awaited Ethereum update would arrive in September 2022 without fault.

This announcement caused the Ethereum price to pump.

What’s missed by normal people

A software upgrade probably isn’t going to get your rocks off. But while all of this goes on there’s another slight tweak that should excite you.

Ethereum is a token that has enormous value.

The value of a token is determined by the demand to own it, its cash flow, and its utility. Because Ethereum has so many functions it’s the second most valuable cryptocurrency in the world by market cap. So demand, cash flow, and value are high.

The value of a token like Ethereum changes when:

  1. The number of new tokens changes (inflation rate).
  2. The number of existing tokens for sale reduces.

Both these things are happening simultaneously after the September Ethereum update (merge). Ethereum expert Vivek Ventures says

ETH inflation drops from 4.3% to 0.22% post Merge.

If we assume 500,000 ETH annual fees, daily ETH issuance drops from 14,250 ETH / day to 736 ETH / day post Merge. That is a 95% reduction in issuance — meaning 95% less ETH that can be sold daily (post withdrawals).

Scarcity has a major effect on price. So as news spreads of the change in underlying Ethereum fundamentals, obviously, its price will go up, as we’re seeing right now.

While Bitcoin is considered digital gold, Ethereum will shift to be a form of “digital bond,” says Vivek.

Crypto expert Nat Eliason says he’s extremely bullish on Ethereum after the September update. “ETH’s inflation rate will drop to a negative 1.4%. That means the supply DECREASES by 1.4% per year…”

As you can see the eventual inflation rate for Ethereum changes slightly based on who you talk to because it depends on a few varying factors. The one thing that isn’t up for debate is that the overall supply will decrease over time.

Compare that to the US dollar that’s melting away at 9.1% per year, and you can see why people are allocating some of their investment portfolios to Ethereum as a hedge.

The buzzword that’s built on Ethereum!

Whenever you hear the word NFT from now on, just think Ethereum.

NFTs are primarily transacted on Ethereum. If companies keep adopting NFT technology and using it, this can only be good for Ethereum’s price.

Starbucks is the latest company to add NFTs to its loyalty program. Starbucks could become more than coffee. For once, they may actually transform into a coffee community with NFTs, and away from the transactional nature of old school customer relationships (yuck).

Gary Vee says NFTs will get further adoption when QR codes all become NFTs. NFTs turn QR codes into smart contracts.

Right now the prices of NFTs are highly speculative.

That will change as they become more mature. Soon every hobby will be able to be tokenized. The price of an NFT will eventually change based on engagement with it, learning points you acquire with a hobby, and the networking made possible with the NFT.

NFTs look like a joke to many. Just some dumb monkey JPGs you trade with each other to look cool, right? Nope.

Many NFTs are memes — and memes are one of the most powerful forms of communication in the world. Even Papa Elon uses them to communicate business messages (and troll Twitter employees who won’t give him what he wants).

Memes are culture.

NFTs are the financialization of culture. And all those NFTs that continue to go viral sit on top of Ethereum. As NFTs have more value, so too, does Ethereum.

The collapse of crypto prices

Despite the recent Ethereum pump, prices have still fallen off a cliff.

This is because no cryptocurrency or investment is immune to the effects of the global economy. As the recession continues and record high inflation keeps biting everyday people, the pain will be felt.

Even with the good news about the Ethereum update, unless the global economy recovers from coroni-rona and the war in Europe, we won’t see any substantial pumps in cryptocurrency prices. So expect that.

But after the economy recovers and there is money to invest again, we’ll see a glorious bull market led by Ethereum.

The world is changing. If you’re not changing with it, you’re getting left behind — Mark Manson

What I’m doing

No one can predict when crypto prices will 100% start to trend back up again and form a new bull market.

There are far too many variables in the global economy. In fact there could be many more surprises caused by the rising global interest rates.

Right now Ethereum prices are cheaper than they’ve been for a long time. So what I’m doing is simply dollar-cost averaging every month into buying more Ethereum. Some months the price will be low. Some months the price will be high.

But I don’t follow asset prices … I follow the trend.

I look at the user network adoption, how many developers build on the network, and whether the underlying business provides utility that creates profits. Ethereum is one of the few projects I can find that checks all these “Business 101” boxes.

So I’ll continue to invest unless the trend changes.

And in cryptocurrency, it’ll take one hell of a competitor and 5+ years to ever rival anything Ethereum can offer as of September.

If every major brand in the world has an NFT strategy, and NFTs are transacted on Ethereum, then none of us own enough Ethereum.

This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.

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