A recent update from Wu Blockchain, led by Colin Wu, highlights a new analysis from Coinbase, suggesting that Ethereum (ETH) is set to perform well in the second half of 2024. Despite a challenging year-to-date performance, Coinbase believes that several factors, including the potential approval of a spot ETH ETF, could drive significant gains for the cryptocurrency.
Coinbase’s analysis indicates that there is a 30% to 40% chance of a spot ETH ETF being approved. Even if the initial decision is negative, the likelihood of a lawsuit overturning the rejection is high. The approval of spot Bitcoin ETFs in the US has reinforced Bitcoin’s store-of-value narrative, and a similar approval for Ethereum could open new capital inflows and provide regulatory clarity.
The blog by Coinbase outlines the current challenges faced by Ethereum, including competition from other layer-1 networks (L1s) like Solana, which have been eating into Ethereum’s market share. Solana’s ecosystem has grown significantly, now accounting for 21% of decentralized exchange (DEX) volume. Despite this competition, Coinbase believes Ethereum has several long-term strengths that differentiate it from other smart contract networks.
These strengths include the maturity of the Solidity developer ecosystem, the widespread use of the Ethereum Virtual Machine (EVM), and the utility of ETH as collateral in decentralized finance (DeFi). Additionally, the decentralization and security of Ethereum’s mainnet, coupled with advancements in tokenization, are seen as key factors that will benefit ETH in the near term.
The growth of Ethereum layer-2 networks (L2s) like Arbitrum, Optimism, and Base, which now constitute 17% of total DEX volume, demonstrates continued strong demand for ETH. These L2s offer scaling solutions that reduce transaction costs and increase throughput, making Ethereum more accessible and efficient for users.
The potential approval of a spot ETH ETF is seen as a major near-term catalyst for Ethereum. Spot ETFs have been crucial for Bitcoin by providing regulatory clarity and access to new capital. If approved, a spot ETH ETF would similarly open up ETH to new capital pools that BTC currently enjoys. Coinbase believes that the approval of a spot ETH ETF is a matter of when, not if, given the high correlation between CME futures and spot exchange rates.
ETH plays a crucial role in DeFi, serving as collateral in money markets and as the base trading unit for many on-chain DEX pairs. The expansion of DeFi on Ethereum and its L2s results in additional liquidity sinks for ETH. Coinbase also highlights Ethereum’s ability to continue innovating despite its decentralized nature, with significant upgrades and improvements made over the past few years.
