Where is Ethereum headed?

Crypto is booming – as per the metrics we’ve chosen to see

You may have heard about the meteoric rise in the total market capitalization of cryptocurrencies. Maybe you also know that Bitcoin’s price has gone up by almost 3900% since the start of 2017. But what you may not realize is that this is just the tip of the iceberg. Besides Bitcoin and Ethereum, there are currently over 1,500 different cryptocurrencies available—and their collective value continues to soar higher by the day. Here’s a more detailed breakdown of just how massive this boom really is:

  • Bitcoin’s growth alone represents an increase of over $100 billion USD
  • The combined market capitalization for all cryptocurrencies has increased over tenfold since the beginning of 2017—currently totaling around $1900 billion USD
  • Cryptocurrency market cap is higher than some of the world’s largest companies (e.g., McDonald’s, Coca-Cola)

People are HODLing OR there are too many dormant addresses

One of the biggest factors suggesting strong demand for cryptocurrencies is the number of addresses with balances on the Ethereum network being at a record high. Not only did the number of unique addresses with a balance increase over the last year, but more than 50% of Ethereum’s circulating supply was held in addresses that had a balance of 1,000 or more ETH. Taken together, these two data points suggest that there is growing demand for cryptocurrencies and people are holding their digital assets for long periods instead of day trading them.

New addresses aren’t an indicator of demand, but adoption is still growing

It’s important to distinguish between demand and adoption. New addresses are one indication of crypto adoption, but they are not a good measure of demand. The number of new addresses that we see each month is also not a good indicator of the number of people using digital currency or blockchain products.

For instance, if you have multiple accounts with the same exchange, then your activity will be reflected on their blockchain as multiple unique addresses. Likewise, if you own several different coins across various projects and platforms, each coin will have its own address. It’s also important to remember that there are thousands of cryptocurrencies that exist outside the top few projects (Bitcoin, Ethereum). These smaller coins often have massive inflationary schedules for investors who participate in initial coin offerings (ICOs), giving them little incentive to use as tradeable assets. The majority end up stockpiled or lost forever in an old wallet somewhere because they are worth so little relative to other cryptocurrencies like BTC or ETH which can afford usability features such as lightning networks.

The crypto market continues to grow but it might be much smaller than you think.

However, the fact that the total crypto market cap is going up doesn’t automatically mean that demand is increasing. Total crypto market capitalization has been boosted by the rise of stablecoins and exchange tokens. As a result, it might be much smaller than you think. Coin Metrics uses a metric called “realized cap” to try to estimate the true size of the crypto market. Instead of using the current price for each asset in circulation, realized cap estimates a more realistic value based on when each coin was last moved on-chain (that is, out of cold storage).

Bitcoin Captilisation(in billion $)
Realized CapMarket Cap
Jan 2019366258%
April 202245675161%
% change1167%1111%
Bitcoin realisation ratio has increased by 3% | Source: CoinMetrics

Ethereum Capitalisation(in billion $)
Realized CapMarket Cap
Jan 201941429%
April 202223234867%
% change5700%2386%
Ethereum realisation ratio has increased by 38% | Source: CoinMetrics

According to Coin Metrics data, realized cap for Bitcoin and Ethereum was about $456 billion and $232 billion respectively at the end of April 2022 — compared to market caps of $751 billion and $348 billion, respectively. This means that actual demand from real users should be significantly lower than what is currently being estimated by looking at market caps alone. But that’s not the full story when we see the proportional change over the past 2 years. Realized cap for Bitcoin and Ethereum was about $36 billion and $4 billion respectively at the end of January 2019 — compared to market caps of $62 billion and $14 billion at that time.

For Ethereum realised capitalisation has grown at 5X Bitcoin, largely attributed to DeFi & NFT adoption. Simply speaking, people are moving ETH out of their cold storage far more rapidly than BTC.

It is still a big experiment – nothing more, nothing less

We have all come to accept that Ethereum is the first successful smart contract platform. It’s also the first successful decentralized application platform. Ethereum’s success depends on creating utility for the retail investor. The Ethereum project should be able to deliver DeFi applications that a common person can use. They should be able to replace banking as a system and provide a way for people to transfer money without paying big fees. And these solutions are far from solved. Ethereum is far from the revolutionary financial lever that it was positioned as. DeFi apps are yet to solve for decentralisation, scalability & security together. Vitalik himself admits that the trilemma is probably impossible to solve for – and developers will continue to weigh the three as trade-offs. As much progress has happened so far, Ethereum only seems to be heading in one place – nowhere.

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