Fees & Utility Demand :

Let’s start with one of the most contentious points about ethereum and that is the fees on the network the main concern about eth is exorbitant fees we can’t deny that. these fees are a reason as to why so many people are looking for competing layer 1 blockchains but the more important question that needs to be answered here is why it’s not as if the network has fundamentally changed there have been no changes that have made it slower than it once was in fast you can the exact opposite due to all the layer 2 solutions that have been developed some pressure is being alleviated from the main chain however the real reason that fees are so high is because of the intense competition for block space competition to use ethereum for a whole swathe of different use cases.

This demand naturally has to be paid for with gas which of course increases the cost of transactions.It seems that those who are using the ethereum network see the high gas fees as a cost of doing so this is despite the fact that there are a  number of other smart contract blockchains out there that people can use it’s a hard circle to square now I’m not trying to say that high fees are good I’m just trying to illustrate that there is massive demand to use ethereum despite its the high cost of usage. 

Defi & NFT :

Defi demand for eth is at record highs according to defillma the total value locked in a smart contract on ethereum is at 183 billion dollars. There are hundreds and thousands of dapps that are built on the protocol to be used in the burning space that is decentralized finance. A space that is no longer being occupied by hobby yield farmers Defi degens it’s got some serious capital from VC funds whales and other financial institutions.

The only blockchain that comes close in terms of tvl(Total Value Locked) is Solana and even it has less than 10 times the total value locked that ethereum does this is even excluding the tvl that’s being locked in ethereum layered 2 scaling solutions these include the likes of the polygon which have over 7 billion in tvl between them.

 Defi is not the only use case that’s competing for that ethereum block space we also cannot forget that exploding demand for stable coin settlement now while stable coins such as tether and usdc are issuing on other blockchains as well the bulk of their outstanding supply has been issued on ethereum but right now it’s neither defi nor stable coins that are driving eth market to the moon it’s all about those nfts.

The craze of non-fungible token is very high and it’s not showing any signs of slowing down yet. This is because they are bringing a whole class of users to ethereum that otherwise would not have been interested in crypto.

ETH Supply Shock :

One of the biggest ethereum update to date was of course eip 1559. One of the main things that everyone was so excited about with these updates was of course the fee burn mechanism basically every single fee that’s paid for transactions has what is called a base fee that is burned from supply this reduction in supply offsets some of the eth emission that comes from those block rewards essentially it reduces the inflation rate.  

Investor Demand :

Currently, institutions are now actively allocating parts of their portfolios towards eth. For eg. a month ago a jp morgan investor note pointed out that ethereum futures demand on the cme was stronger than that of bitcoin.

Recently JP Morgan said that Ethereum is likely to be a better bet than bitcoin. According to it’s global market strategist rising interest rates could pose a problem for bitcoin as they have traditionally done for gold.

Another potential driver of eth investment demand could be coming from an etf instrument in the u.s. About a month ago we saw all the hype that this brought to the bitcoin markets when the sec approved a number of  bitcoin instruments.

According to analysts from Bloomberg they think that an eth futures etf could come before a bitcoin spot one this could come as early as the quarter of 2022 almost about the time that we could see that proof of stake merge.

Price Analysis 

The first price prediction I want to bring to your attention is a note from a managing director in Goldman Sachs interest rate strategies division he makes the case for eth hitting 8k before the end of the year and he does this by analyzing its performance in relation to forward inflation rates.

Now i want to bring your attention to this incredible fundamental analysis by Nilo orlandiin the bankless newsletter it takes a look at the inelastic market hypothesis and applies it to the eth market more specifically how the market could react inelastically to incoming investor flows how these potential flows could multiply the market cap and value in a disappropriate way.

If we were to assume a 90 % issuance drop post-merge combination of the triple halving and fee burns as well as a constant 27 million dollars flowing into the market per day the price of ether could be sustained at 20000$.