DeFi
Ethereum’s Rise Paves the Way for Unprecedented Growth
By Facundo Zamora, CEO of Finanflix and Juan Ignacio Murua, CFO of Finanflix
From black rock (NYSE: BLACK) announced his Bitcoin (CRYPTO: BTC) ETF, the market capitalization of BTC has surged, now exceeding $1 trillion, a monumental figure. To put this into perspective, even if you combined the market caps of large companies like Coca-Cola (NYSE: KO), Disney (NYSE: SAY), AMD (NASDAQ: AMD), And Intel (NASDAQ: INTC), their total would still be lower than the colossal valuation of BTC. This staggering growth not only highlights the significant market confidence following Blackrock’s approval, but also highlights Bitcoin’s growing influence in the financial world. The cascade effect is inevitable, with smaller but substantial funds like Fidelity and Templeton following the same path.
The market is rarely wrong when it comes to pricing announced future events, and today we see the price of Bitcoin hitting an all-time high just before its next halving, something we’ve never seen previously. The euphoria over BTC surpassing $73,000 is clearly not the same as the euphoria at $69,000 in 2021, with a refreshed market and a projected downward trajectory for the federal funds rate. Additionally, it is worth noting that Blackrock is now purchasing over USD 45 million worth of BTC daily.
Looking at the past, we have seen the cryptocurrency market grow between 10 and 50 times after each halving. And we have yet to see approval for an Ethereum ETF, which Blackrock also introduced.
Ethereum (CRYPTO: ETH) provides the crucial blockchain infrastructure needed to build applications for businesses. Among the thousands of apps are Infura and Consensys, both owned by J.P. Morgan (NYSE: JPM). It would therefore not be far-fetched to envision a scenario in which Ethereum exceeds the $1 trillion market cap in the short to medium term, which could lead its price to surpass $10,000 per ETH. In this case, we could see a break from the traditional crypto theory of capital migration, where money flows first to BTC, then to ETH, and then to high caps, low caps and altcoins, respectively. This time, Ethereum could chart its own, somewhat independent trajectory.
Our analysis at Finanflix concludes that the Ethereum token becomes increasingly deflationary as activity on its blockchain increases, thereby influencing DeFi behavior.
After Ethereum’s brand and tokens see a significant increase, we should expect a large portion of capital to migrate to DeFi protocols built on its blockchain. Initially, Ethereum’s infrastructure will struggle to handle the massive increase in transactions, and that’s when its layer 2 protocols such as Arbitration (CRYPTO: ARA), Optimism (CRYPTO: P.O.), And Polygon (CRYPTO: MATIC), among others, will experience a peak in activity. This will put upward pressure on their prices since those protocols’ tokens are needed to pay fees, and any money coming from ETH will naturally gravitate first to the protocols closest in usage. Having already seen price returns in excess of 1,000%, we would not be surprised to see a similar situation under these circumstances.
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A closer look at decentralized applications (DApps) running on Ethereum could reveal price discovery events with UNI from Uniswap (CRYPTO: United), Ethereum’s leading decentralized exchange, surpassing $100 per token, or AAVE (CRYPTO: AAVE), Ethereum’s main lending protocol, reaching $1,000.
Finally, regarding the myriad of low-cap protocols like Verasity or Arkham, not to mention meme coins/altcoins, potential returns are uncertain. We must remember that when the true bull market hits crypto, the market can become completely irrational.
Today, the total value locked in DeFi has returned to over 100 billion USD. But this time, the ecosystem is much more developed, the protocols are generating revenue, and the overall market conditions are unlike anything we’ve seen before. This precedent is likely to elevate DeFi to new levels of validation and trust, and once that happens, we will witness a truly different paradigm. The opportunity cost of skepticism in our time may simply be too high.
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