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What Exactly Is Ethereum?

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VOC, Voice of Crypto, ETH

What exactly is Ethereum (ETH)? The global position on cryptocurrencies appears to be shifting. This is partly due to the current crypto market that has devastated the blockchain and crypto ecosystem and dragged most cryptocurrencies miles below the highs they claimed in the bull run of 2021.

The volatility of most cryptocurrencies has dropped along with their prices.

Investors and traders appear to now be losing interest and may have a preference for buying and holding as opposed to trading.

Bitcoin’s 30-day volatility is at a two-year low. The market continues to consolidate and range as it waits for the next wave of momentum that pushes its prices upwards or downwards.

In this article, we examine what Ethereum is. Can Ethereum be classified as an economy, a business, or a store of value like Bitcoin?

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Ethereum as a Business?

Ethereum is a smart contract platform. This means that several businesses and platforms are built on its infrastructure.

It is only reasonable to assume that the Ethereum network accumulates revenue from the gas fees paid by these businesses and platforms built on top of it. The Ethereum network, over the last five years, is known for its relatively high gas fees, increasing at a Compound Annual Growth Rate of 97% yearly.

Chart showing the correlation between Ethereum’s price-to-sale metric and its price 

Chart showing the correlation between Ethereum’s price-to-sale metric and its price | Source: IntoTheBlock

Based on how it operates and generates revenue, it can be assumed that Ethereum is a business.

Ethereum’s Growth Stock

Ethereum may compare to stocks in terms of the speed of its growth. However, the cryptocurrency’s price per token remains high compared to the value per stock of even the largest tech and pharma giants.

Ethereum’s Price to Sale (P/S) ratio, if it was a company stock, would be about 120. This figure dwarfs the cloud company, Snowflake’s P/S, of about 32.5.

This is the case, despite how snowflake recently announced that it expects a total fiscal 2023 product revenue growth rate of about 67% year over year.

This metric suggests that Ethereum may be overvalued as a stock.

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However, Ethereum is one of the market’s least “overvalued” cryptocurrency stocks, compared to most others, with Price to Sale ratios close to 1000.

Ethereum in Terms of Fees and Valuation

The fees paid to a network are usually called “gas.” This payment is a fee the users of said network pay to execute their transactions.

Bitcoin’s fees have climbed 55% over the last few months, reaching new highs from its yearly low in 2021.

Despite the bear market, however, Ethereum’s fees have remained high. The valuation of the cryptocurrency has also climbed in 2022.

Chart showing highs in ethereum’s valuation

Chart showing highs in Ethereum’s valuation | Source: IntotheBlock

As illustrated by the chart, these new highs were especially prominent in the fourth quarter of 2021 and haven’t gone down ever since.

Ethereum as a Store of Value

Right after the merge in mid-September, the ETH issuance dropped to 90%, and the total supply now increases by 0.3% annually. This is a significant hedge for the cryptocurrency in terms of escaping inflation.

Most of the transaction fees collected is being burned. The rest is used as staking rewards for the network’s validators.

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Ethereum is also expected to gain value over time, owing to the Minimum Extractable value (MEV) and the reorganization of transactions in such a way that there is now a greater demand for validators on the network.

Ethereum in Terms of Exchange Netflows

Cryptocurrencies entering exchanges may indicate that investors and traders are beginning to sell their holdings.

This metric makes it easy to gauge the market’s sentiment and determine if it is bullish or bearish.

The exchange net flows for Bitcoin and Ethereum have remained relatively unchanged, signaling that retail and institutional investors may be accumulating the cryptocurrency over the long term.

ETH in Terms of Price

Ethereum is generally bearish from a long-term perspective. The cryptocurrency has dropped in price over the last 11 months from its $4850 high and is now worth about $1,300.

Chart showing price decline on Ethereum since November 2021 

Chart showing price decline on Ethereum since November 2021 | Source: Tradingview

Ethereum is now testing the top support of the descending channel it has formed. It is also preparing for either a bounce or a breakout.

Chart showing possible price trajectory on Ethereum versus USDt

Chart showing possible price trajectory on Ethereum versus USDT | Source: Tradingview

The trajectory of Ethereum over the next few weeks determines whether the bulls can push its price above the descending channel’s upper resistance or if a bounce to the downside occurs.

 

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Disclaimer:  Voice of crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.

Jim Haastrup is a freelance blockchain and metaverse writer. He helps founders, investors, startups, crypto, and blockchain enthusiasts connect with their audience and win investment through the written word.

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