Ethereum hits new all-time highs as analysts point to inflation-hedge appeal
(Kitco News) Ethereum is running well ahead of the crypto pack, with the cryptocurrency reaching new all-time highs on Wednesday. Analysts are now looking into its connection to rising inflation expectations.
The ether token hit a record high of $4,642.48 on Wednesday. The cryptocurrency is following in the footsteps of bitcoin, which hit its new all-time high of $67,016.5 at the end of October.
"A Bitcoin floor appears to be inching up toward $60,000 from $50,000, with fuel for a year-end sprint toward $100,000. Ethereum appears on track for $5,000, with support around $4,000," said Bloomberg Intelligence senior commodity strategist Mike McGlone.
Wider blockchain adoption is supporting the move higher in ethereum, which poses competition to bitcoin.
"It has become clear in the last six months that bitcoin faces competition as Ethereum and other Layer 1 assets become more innovative, with DeFi and NFT use cases, while bitcoin's primary use case continues to be as a scarce, fungible digital asset," said Chainalysis chief economist Philip Gradwell. "A further 4 million Ethereum have flooded into DeFi since mid-April, bringing the total to 17.6 million Ethereum, 15% of the total supply. These are all very positive developments for crypto and I think its potential is now clearer than ever."
Ethereum is outperforming bitcoin this year, with the former up 512% year-to-date and the latter up 115% year-to-date.
More institutional investors will be piling into both bitcoin and ethereum before the year-end, noted McGlone. "Global asset managers with zero Bitcoin and Ethereum allocations may need to rethink their approach as 2022 draws near, with risks tilting against the holdouts amid the rapid evolution in digital assets," he said.
The latest development saw Commonwealth Bank of Australia (CBA) announcing that it will be the country's first main-street bank to offer cryptocurrency trading to retail customers. The CBA said that it would be partnering up with New York-based exchange Gemini Trust Company LLC. "We believe we can play an important role in crypto to address what's clearly a growing customer need," Commonwealth Bank Chief Executive Matt Comyn said in a statement.
The CME Group also announced it would be launching Micro Ether futures on December 6, pending regulatory review.
Ethereum also plays a major role in the NFT market and the metaverse development.
According to Goldman Sachs global markets managing director Bernhard Rzymelka, ether's rally has legs to run. Ethereum could reach $8,000 before year-end if it continues to track inflation expectations, Rzymelka wrote in a note on Monday. Goldman's analysis also showed ethereum tracking inflation closely.
Ethereum fans are starting to view the cryptocurrency as an inflation-hedge — a status placed upon only bitcoin before because of its finite supply.
ETH to surpass gold's market cap within 5 years.
ETH is the world's most deflationary asset with no supply floor.
Both Gold and Bitcoin are inflationary vs. ETH's reducing supply.
Ethereum is a deflationary asset. $ETH
— Ethersole (??,??) (@SickDudeTight) November 1, 2021Data published by the blockchain tracking site watchtheburn.com showed the gap between the number of tokens being issued and the number of tokens being burnt as turning negative for the first time during the past week.
Following an update in August, ethereum now has to go through a process called burning — when ether tokens are taken out of circulation. This was designed to handle more transactions and make fees more affordable.
This means that ethereum network has to burn a small quantity of the ether token after each transaction. This is why now there are days when more coins are destroyed than minted, especially when transaction activity surges on the network itself.
The more the Ethereum network is used the more ethers are being burnt. Simple logic; price rises -> higher activity -> higher deflation -> higher prices (loop)
prices goes down -> less activity -> higher inflation -> lower prices -> less activity (loop).
This is going to be fun! https://t.co/RzcH2lHabu
However, this new inflation-hedge idea is being questioned by some experts in the crypto space.
"We see so much misinformation out there about how Ethereum is deflationary," Genesis Global Trading head of market insights Noelle Acheson told Bloomberg. "Occasionally, yes it is, but that's not the purpose."
By Anna GolubovaFor Kitco News
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