Why Ethereum is an Apex Predator Asset

While many casual crypto observers will focus predominantly on Bitcoin, when it comes to crypto investments, the fact is that Ethereum is a wildly bullish asset. If investors want to get exposure to almost every use case in crypto beyond just digital gold, then Ethereum presents an attractive option. Furthermore, Ethereum has unique supply and demand mechanics that make it well positioned for price appreciation. While the crypto market is filled with literally thousands of coins, Ethereum has managed — for almost a decade — to consistently hold the #2 spot and maintain approximately 20% total market dominance in the industry. However, these numbers only scratch the surface in terms of the token’s significance because Ethereum is a keystone asset of the market. The majority of what is built in crypto is built on Ethereum, based on Ethereum, or bridges liquidity back to Ethereum. It is an apex asset in the crypto space and would likely be a good addition to a casual crypto investor’s portfolio. Holding both Bitcoin and Ethereum provides exposure to 70–90% of the entire crypto market, given that many major coins in the top 100 are Ethereum ecosystem coins. So, let’s dive in and find out why Ethereum is so well positioned in this market.

Perpetual buybacks mean Ethereum is deflationary

The supply of Ethereum is uncapped, which can worry some investors, but that simple term hides a critical truth. Officially, Ethereum has a 0.6% inflation rate but thanks to the burn mechanism, which is similar to a programmatic perpetual stock buyback mechanism, Ethereum is currently deflationary. Only by 0.137%, but still deflationary. This deflation rate can and will likely increase during the bull market as demand for access to the Ethereum network increases.

The staking contract ensures stability

At the time of writing in mid-July, 47.4 million Ethereum are being staked. This is a little over one third of the total supply. This number has been steadily increasing for almost two years now. Why does it matter how much Ethereum is in the staking contract? Because Ethereum has a maximum amount that can be unstaked in a single day — 40,000. If every investor wanted to unstake tomorrow, then it would take over two years to unstake all the coins. The staking contract is a black hole that has, in essence, locked up huge sums of the supply.

Ethereum ETFs have entered US markets

Ethereum Exchange-Traded Funds (ETFs) are finally here for US markets. While countries such as Canada and Brazil have had them for a few years, the entry of these products into US markets is a big deal, considering that US markets account for 52–54% of total global equity markets on any given day. US Bitcoin ETFs saw USD 17 billion in net inflows in the first six months of trading. If Ethereum ETFs capture just one third of that, then we could see 1.4 million Ethereum sucked into these products in the first six months. With current on-exchange balances of 16 million, down 50% from 32 million in three years, the impact of 1.4 million coins being bought for ETFs could be significant. For reference, the first two months of Bitcoin ETF trading saw the price rise from USD 46,000 to USD 73,000.

Ethereum’s layer 2 networks are experiencing rapid growth

In the last year, the demand for Ethereum on Ethereum’s layer 2 networks has soared. Up from 6.3 million to 12.5 million. Demand to use Ethereum at the layer 2 level has literally doubled. The reason for the increase is twofold. Firstly, it is needed to pay gas fees to process transactions across all layer 2 networks. Secondly, it is used in decentralized finance protocols across layer 2 networks such as Coinbase’s Base. By the way, 12.5 million coins is just over 10% of the entire supply of Ethereum. As layer 2 networks grow, then so too will demand for Ethereum, and currently the networks are showing no signs of stopping.

The value proposition

So, okay, supply and demand both look good, but what is the real value proposition of Ethereum? Well, Bitcoin is digital gold, which is an easy narrative to understand, but Ethereum is more akin to the ultimate crypto bond. Bullish on stablecoins? Buy Ethereum. Bullish on crypto gaming? Buy Ethereum. Bullish on Ethereum layer 2s? Buy Ethereum. Bullish on NFTs, crypto AI, memecoins, or 50 other use cases? Buy Ethereum. Owning Ethereum gives exposure to all of these use cases by simply holding one asset that pays around 3% APR in Ethereum. Please note that APR in a crypto context can be confusing. The staking rewards are paid out in Ethereum. So, if you have 100 Ethereum, you get three more Ethereum per year. How that factors in a total return on investment is highly dependent on market forces and can result in investors getting more or less dollar returns for staking their Ethereum.

Can bigger gains be had elsewhere? Yes, but risk-adjusted Ethereum can be a very tempting asset for investors who are broadly optimistic about the future of cryptocurrency. Many competitors have risen and fallen over the years, but Ethereum continues to stay ahead of the pack and prove that it is the top dog of smart contract platforms.