Ether could surprise on the upside in the coming months, Coinbase says

• Coinbase said Ether has the potential to surprise on the upside in the coming months.

• Cryptocurrency is unlikely to be replaced as the center of decentralized finance, the report says.

• The market may be underestimating the timing and likelihood of a potential approval of a US Ether Traded Fund.

Ether {{ETH}} has underperformed the broader cryptocurrency market this year, but its long-term positioning remains strong and has the potential to surprise to the upside, Coinbase (COIN) said in a research report on Wednesday.

The second-largest cryptocurrency by market value is up 29% year to date, less than two-thirds of the surge of its biggest rival bitcoin {{BTC}} which has gained 50%. The CoinDesk 20 Index (CD20), a measure of the broader cryptocurrency market, rose 28%.

“Ether may have the potential to surprise to the upside in the coming months,” the report says, noting that the cryptocurrency has no “major sources of supply-side excess” such as token unlocking or pressure created by miner selling.

“Instead, both staking and layer 2 growth have proven significant and represent a growing liquidity sink for ETH,” wrote analyst David Han. “ETH’s position as the center of decentralized finance In our opinion, (DeFi) is also unlikely to be replaced due to the widespread adoption of the Ethereum Virtual Machine (EVM) and its layer 2 innovations.”

THE EVM is the native computing system of the Ethereum blockchain that allows developers to create smart contracts and allows nodes to interact with them. Layer 2 they are separate blockchains built on top layer 1or the basic level, which reduces bottlenecks with scaling and data.

Furthermore, the importance of potential US spot Exchange Traded Funds (ETFs) cannot be understated. “We believe the market is underestimating the timing and likelihood of a potential approval, which leaves room for upside surprises,” Coinbase said

“Even if the first deadline of May 23, 2024 is pushed back, we believe there is a high likelihood that litigation could reverse that decision,” the statement said. “In the meantime, we believe that structural demand drivers for ETH and technological innovations within its ecosystem will allow it to continue to ride multiple narratives.”

To know more: Ethereum Developers Target Ease of Crypto Wallets with ‘EIP-3074’

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