2021 is sure to be a revolution for cryptocurrencies, especially given the mainstream emergence of decentralized finance (DeFi) and non-fungible tokens (NFTs). However, the good times don’t last forever. And, many fear that this year may not be as lucrative as it is now for investors with clear signs of decline.
Price is not binding
According to IntoTheBlock analyst Lucas Outumuro, Ethereum’s utility could be its saving grace in this case. In his recent report, he emphasized that the transaction volume of the smart contract platform is increasingly losing correlation with the price action of ETH. This means that the network and its native token are now being used no matter where the price is headed.
This was not the case during the 2018 crypto crash, when the number of transactions plummeted along with the price.
Source: IntoTheBlock
The steady flow of transactions can be attributed to DeFi’s summer of 2020, coupled with the rise in popularity of web3 and NFT platforms last year. In fact, many of the same are built on top of Ethereum’s Layer 1.
Source: YCharts
A similar trend can be noted in the number of daily active addresses on the Ethereum network. It plummeted in early 2018 following the price crash. However, it has remained stable, despite the bloodbath in May 2021.
Furthermore, Ethereum’s non-zero addresses also recently hit all-time highs. This could indicate accumulation from hopeful investors.
📈 # Ethereum $ ETH The number of non-zero addresses that just reached ATH is 73.104.412
View data:https://t.co/beS1MtIgAZ pic.twitter.com/ePQapmc1dq
– glassnode warning (@glassnodealerts) January 18, 2022
Burn the bears
Another factor that made Ethereum in favor of Ethereum last year was the implementation of a fee burning mechanism through EIP-1559. Since then, more than 1.55 million ETH worth nearly $4.8 billion has been burned in an attempt to make the digital asset deflationary. The target was somewhat reached this week after a fresh high of over 20,000 ETH was burned in a day.
Furthermore, its inflation rate has also fallen below that of Bitcoin – traditionally considered an inflation hedge due to its limited supply cap.
This month $ ETH inflation rate falls below $BTC inflation rate
When Consolidation takes place in July, ETH issuance will drop by 90% and turn into full deflation
This will be the most optimistic event in the history of # Ethereum
This is why ETH is actually extremely useful money pic.twitter.com/XgFgvuaXRl
– Crypto-Gucci.eth ᵍᵐ🦇🔊 (@CryptoGucci) January 17, 2022
An ‘OpenSea’ of opportunities
Outumuro argued in the report that renewed or sustained NFT euphoria has also pushed Ethereum’s viability to higher levels. While the NFT market is based on Ethereum, OpenSea continuously executes millions of USD worth of transactions every week, the emergence of new platforms like LookRare, which has already taken the market by storm, has only added to the frenzy. .
Well, look at the 24-hour volume of @LooksRareNFT with @opensea is it coming?#LooksRare #opensea pic.twitter.com/AIFIZyIFNP
– Rotem Yakir (@yakirrotem) January 16, 2022
In fact, JP Morgan commented in a report,
“With NFTs being the fastest growing universe in the crypto ecosystem, Ethereum’s share in the NFT space could prove to be more important than its share in the DeFi space in terms of future valuation.”
Competition is widening
Despite the uptrend, Ethereum’s lingering congestion problems have cut into its success. Outumuro notes in its report that the network’s slight drop in transaction numbers over the past year can be attributed to the emergence of Layer 2 scaling solutions. Arbitrum and Optimism, for example, are significantly less expensive. compared to Ethereum.
ETHEREUM TRANSACTION FEE IS INSANE! 📈 pic.twitter.com/Yq15zhoVRQ
– That Martini guy (@MartiniGuyYT) January 15, 2022
However, the trend could also point to a weakening of Ethereum’s dominance as rival blockchains become alternatives. Cardano’s daily transaction count has been on par with Ethereum’s, even briefly surpassing it this week. Add to that the appearance of Fantom, which could also prove to be a worthy competitor.