While many market observers might attribute Ethereum’s recent price rally to optimism stemming from the possible approval of an ether spot ETF, asset manager Grayscale Investments has suggested that the value of cryptocurrency has increased due to Ethereum’s upcoming Dencun upgrade, which will increase throughput and reduce the cost of certain transactions on the network.
“We believe the recent price action reflects market anticipation of this upgrade,” said Grayscale Research Analyst. William OgdenMoore written in a new report published Friday. “Ethereum’s Dencun upgrade, scheduled for March 13, 2024, represents a major breakthrough and could help Ethereum compete on scalability with faster chains in the smart contract platform crypto sector, such as Solana.”
In the new report, the Grayscale analyst made a fairly bullish case for Ethereum, the second most popular cryptocurrency by market capitalization. The price of ether is currently up about 25% year to date, according to The Block’s Price Page. However, the report notes that in 2023, the price of ether has underperformed compared to its sector and especially compared to competitors like Solana, which saw growth of over 900% last year.
Ethereum price since the beginning of the year. Image: The block prices page.
Taking a bullish stance on Ethereum likely won’t come as a surprise, as Grayscale is currently attempting to convert its Ethereum trust into a spot ether ETF. Some believe the Securities and Exchange Commission is likely to approve the new financial instrument by May, especially considering the agency approved spot Bitcoin ETFs, which began trading last month.
Ranked by assets under management, Grayscale has the largest spot Bitcoin ETF on the market.
Capture more smart contract applications
Besides the upcoming Dencun upgrade and the possibility of spot ether ETFs being approved, the Grayscale report identified “net deflationary supply” and “network revenue generation” as other reasons for optimism.
Grayscale also said that Ethereum can become more competitive and is capable of capturing more smart contract activity. “If Ethereum can simply become more competitive in terms of throughput and cost, it could position itself to capture smart contract applications that demand high levels of security and censorship resistance, such as stablecoins or tokenized financial assets “Moore wrote.
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