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Cryptocurrency market analysis: Why is Ethereum undervalued?

From September 1st to October 1st, the price of Ether against Bitcoin dropped by 10.34%. On Binance, the price of the ETH/BTC trading pair fell from 0.037237 BTC to 0.033385 BTC. In the face of the dominant BTC, it is difficult for ETH to find upward momentum. There are obvious reasons behind the poor performance of the latter in the past two months, but it is recovering.

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There are three main reasons for the stagnation of ETH.

First of all, most of the trading volume in the crypto market flows to Bitcoin, which divides the trading volume of other tokens (including ETH) in the crypto market.

Secondly, Ether and decentralized (DeFi) tokens fell simultaneously in the context of a large-scale correction in the entire altcoin market.

Finally, there is uncertainty surrounding ETH 2.0 and whether it can be completed by the end of the year.

But since then, the situation seems to have improved. During the 3 days from November 3rd to 5th, ETH rose by about 9%, showing an upward momentum. Basically, after Ethereum co-founder Danny Ryan announced the release of the ETH 2.0 deposit contract, ETH began to rebound. In addition to the upcoming ETH 2.0 mainnet, the DeFi market is still strong, and ETH has also shown positive signs on long-term charts including monthly candlestick charts.

Next, this article will analyze ETH’s recent rise in depth from four aspects:

Reason 1: ETH 2.0

On November 5, 2020, Buterin officially announced the release of the ETH 2.0 deposit contract. This confirms the ETH 2.0 network upgrade to be launched in the near future, and the current expected activation date is December 1, 2020.

ETH 2.0 coordinator Danny Ryan said, “Today, we released the 1.0 version of ETH 2.0 details, including the mainnet deposit contract address-0x00000000219ab540356cBB839Cbe05303d7705Fa. ETH 2.0 will have a MIN_GENESIS_TIME of 1606824000-this unix timestamp means ETH 2.0 Will not start earlier than 12:00 UTC on December 1, 2020.”

Whether in the long-term or short-term, ETH 2.0 is a positive catalyst for the price of Ethereum. This upgrade will shift Ethereum from a Proof of Work (PoW) algorithm to a Proof of Stake (PoS) algorithm. This shift eliminates miners from the network and enables users on the Ethereum blockchain to collectively verify transactions.

Users confirm transactions through a process called “staking” (staking). Essentially, the term “staking” refers to the allocation of user funds to the ETH 2.0 contract. When users pledge ETH, this part of ETH cannot be transferred or used, but users can choose to withdraw at any time.

The arrival of the staking mechanism can benefit the price of ETH mainly from two aspects. Participating in staking requires at least 32 ETH, so it may encourage users to buy more ETH so that they can get rewards through staking. If many users choose to pledge ETH, it will reduce the ETH circulating in the exchange and reduce the selling pressure.

Within one hour after Buterin officially confirmed the launch of ETH 2.0, the price of ETH increased by 3.7%. Since then, the price of ETH against the US dollar has continued to rise, achieving a 3.1% increase since the official statement.

So far, the market and community sentiments surrounding ETH 2.0 have been absolutely positive. Joseph Lubin, co-founder of Ethereum and founder of ConsenSys, emphasized the complexity of this upgrade. He said:

“Coordinating the creation of ETH 2.0 is by no means a simple task-it involves five different customer teams, researchers, auditors, and testnet verifiers, ETH 2.0 economists, and security experts sharing the key Knowledge. @dannyryan, superb execution.”

Reason 2: The total value of DeFi protocol lock-in is still very high

In addition to the high expectations for ETH 2.0, the positive sentiment towards DeFi is also a positive factor. According to data provided by Defipulse.com, as of the time of writing, the total value of DeFi lock-in (TVL) has exceeded US$12.05 billion.

Although the prices of major DeFi tokens have fallen by about 50% recently, the high TVL in the DeFi agreement indicates that the demand for DeFi products has not been affected.

ETH 2.0 can help DeFi because it improves the transaction capabilities of the Ethereum blockchain. Throughout September, especially at the peak of the DeFi boom, the Ethereum blockchain was unable to meet the demand for overload. The chain has become very congested and transaction fees have skyrocketed.

Currently, the Ethereum blockchain network is capable of processing 15 transactions per second. After ETH 2.0 goes online, Buterin stated that the network will be able to process 1,000 to 5,000 transactions per second.

If a new DeFi cycle is ushered in after the launch of ETH 2.0, it will greatly increase the number of transactions that Ethereum can process per second and improve the overall user experience.

Reason 3: Technical structure under the long-term framework

Since September, the price of ETH has fallen into a stagnation phase relative to BTC. But this also caused ETH to consolidate above the key moving average on the monthly candlestick chart.

The monthly candlestick chart is a long-term frame chart used by traders to observe the macro and long-term trends of an asset. Since 1 candle reflects the entire month’s trading activities, the monthly candlestick chart can cover trading activities within a few years.

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The monthly candlestick chart of Ethereum shows that the opening price of November is just above the 5-day moving average. Consolidation above the key short-term moving average, especially on the long-term chart, indicates that the medium and long-term outlook for ETH is bullish.

Reason 4: DEX volume shows that ETH has upside

In addition to the favorable technical structure, the fundamentals of ETH also indicate that the token has room to rise. According to the data provided by cryptofees.info, the average weekly fee on decentralized exchanges (DEX) remained relatively low compared to September and October.

For part of October, the daily handling fee of the largest DEX on Ethereum — Uniswap — even exceeded that of Bitcoin. This shows that the user activity level on DEX and DeFi is quite high.

However, since September, as DeFi has fallen into a downturn, DEX fees have dropped significantly. Although Uniswap’s daily transaction fees have reached 668 million U.S. dollars, other DEXs including Sushiswap and Balancer receive only about 100,000 to 130,000 U.S. dollars in daily fees.

Although the number of DEX and DeFi users has decreased, the fundamentals of ETH are consolidating, especially because of the positive impact of ETH 2.0. Considering that ETH has begun to rebound during a period of relativel

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