According to Ignas, a DeFi research platform, Ethereum’s bearish sentiment is currently dominating discussions on Crypto Twitter. However, Coinbase analysts believe Ethereum will experience a positive turnaround later in the cycle. They have identified ten key reasons supporting this optimistic outlook.
Firstly, Ethereum maintains its dominance in decentralized exchange volume despite competition from Solana and other Layer 1 blockchain. Ethereum’s extensive developer ecosystem, widespread use of the Ethereum Virtual Machine (EVM), and its critical role in decentralized finance as collateral help keep it competitive.
In terms of stablecoin supply, Ethereum leads in stablecoin issuance, a crucial metric for adoption. Even as Solana gains traction, Ethereum Layer 2 solutions like Arbitrum surpass Solana in stablecoin supply.
Ethereum’s utility in DeFi is unparalleled. It serves as essential collateral for money markets such as Maker and Aave and creates a significant liquidity sink for Ethereum. The distribution of Total Value Locked across various blockchain networks underscores Ethereum’s dominance. Ethereum holds 58.13% of the TVL. In comparison, Tron holds 9.25%, Binance Smart Chain has 5.56%, Solana has 4.9%, and other networks hold smaller shares.
ETH staking is another significant liquidity sink. Post-Merge, stakers continue to outpace ETH issuance. Unlike Bitcoin miners, ETH stakers aren’t compelled to sell, minimizing sell pressure. L2s like Arbitrum and Optimism are growing rapidly, utilizing ETH as gas. More than 3.5 million ETH is locked in L2s, further absorbing ETH liquidity.
ETH often trades in line with Bitcoin but can decouple during bull markets. It trades like a tech-oriented crypto, which can perform well in bull markets. This dual nature as a store-of-value and tech token gives ETH a unique edge.
Institutional preference for Ethereum is evident, with major financial institutions choosing Ethereum for tokenization projects. Notable examples include Blackrock’s BUIDL fund and JPMorgan’s ODA token standard.
Since Ethereum transitioned to Proof-of-Stake, its inflation has decreased. Unlike Bitcoin, Ethereum’s positive inflation is not a critical structural component, as staking absorbs much of the newly issued ETH, reducing sell pressure.
Finally, the widespread adoption of the EVM creates a large developer talent pool. Changes to the EVM often begin on Ethereum and spread to other networks, maintaining developer mindshare. Coinbase believes the existence of a US spot ETH ETF is a matter of when not if. They argue that the market is underestimating this catalyst, leaving room for potential upside surprises.
