Ethereum (ETH-USD), once thought of as the golden child of the next wave of tech innovation, had a very bad 2018. After hitting an all-time high above $1400 in January, ETH prices have fallen below $100. Like many others who believe in the opportunity of Ethereum-based smart contracts, a price point near $100 represents an excellent buying opportunity in ETH. However, there are reservations on this – namely adoption and a new staking system to be unveiled in 2019.
We’ll start with the big Ethereum news this week: layoffs at ConsenSys, a company run by Joseph Lubin, an Ethereum cofounder. A full write-up is here; but the summation is that Lubin founded it as an experiment that spent wildly, with money propped up in a rising ETH price. With ETH prices dumping over 90%, the company’s runway is and was in jeopardy.
The fact is this, money came flowing into the ETH ecosystem in 2017, with dozens of ICOs pitching new coins run on ERC-20 (an Ethereum compatible blockchain). Now that money has slowed and companies have had to sell-off ETH raised in initial coin offerings, causing a massive wave of panic sales, driving the price further down.
This affected ETH prices significantly in mid-2018. A bubble can pop when investors fail to see value return from a speculative investment, but a bubble pops faster as hundreds of companies need to liquify assets in order to pay ballooned staff. But this is a temporary problem.
Because as ETH prices have dumped, network usage and fundamentals have strengthened. The linked article’s author writes:
Since their respective peak prices, Bitcoin’s and Ethereum’s network values are down 81% and 93%, respectively, whereas demand for their respective native functionalities is down 74% and 7%, respectively.
This is important. The value of ETH is based on the demand for blockchain usage which requires the “gas” payments from its tokens. If and as smart contracts start to pile on the chain, supply economics should turn up prices for others wishing to utilize the self-execution innovation of programmed Ethereum contracts.
Here’s that same author’s graph of ETH usage over time:
Of course, Ethereum will need to hold its status as the premier option for smart contracts. There’s been a not insignificant amount of chatter and coverage online about apps moving to coins like Tron and away from Ethereum. This is buoyed by Tron’s leader, Justin Sun, being a more prolific talking head than Ethereum’s Vitalik Buterin. But Sun is looking to boost Tron adoption among internet users and Buterin is trying to figure out something much more difficult. An entire economic incentive system for holders of Ethereum tokens.
What that refers to is the system of “staking” that the Ethereum team is expected to introduce next year. This would replace the resource intensity of “mining,” and provide ETH holders with economic rewards to “hold” or “stake” their cache of coins. The rate of these rewards, and the value seen in holding on to a stake of ETH instead of keeping it liquid in or around exchanges. This, perhaps more than anything other than wide adoption of Ethereum protocols, has the opportunity to change ETH prices to a tremendous degree.
Technicals have some support for ETH as well. There are support lines at $96 and $104 on USD trading pairs. Calls for an increase in price once smart contract pipelines are opened in 2019 also set an optimistic tone for ETH.
The look for ETH is long term and an investor may need to stand strong behind price fluctuations even beyond the 2018 ETH range of $86-$1400. Still, it’s hard to imagine how the combination of a cashless future and the kind of disruption opportunity Ethereum has around it not creating a technology valuable beyond the $9 billion market cap that ETH tokens currently have. Despite the bubble-like year we’ve had, we’ve called ETH a buy under $200 and continue to see it as such.
Bitcoin may have come down from the stratosphere, but there’s still an abundance of opportunities in cryptocurrencies. At the Coin Agora, our focus is on altcoins – the smaller cap cryptos that have massive potential to disrupt business ecosystems. Invest with us for your chance to get in on the ground floor. Our mission is to help you find small, new and growing coins and reap rich returns. Let us help you cut through the noise and find winners – join the Coin Agora community today!
Disclosure: I am/we are long ETH-USD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.