Nick Chong · 6 days ago · 2 min read · Insights via Grayscale Investments
Due to the fact that the start of historical parabolic rallies in the Bitcoin price lined up with previous halvings, a reduction in block rewards has long been deemed the crypto market’s biggest and most promising catalyst for a bull run.
But the introduction of Ethereum 2.0 — a blockchain upgrade slated to dramatically improve the speed and usability of the network — in the coming months may do more to move markets than the halving that transpired just days ago, according to a crypto researcher.
Ethereum 2.0 to be a “stronger catalyst” than Bitcoin halving
If you’ve read Crypto Twitter over the past few months, you likely know how much faith cryptocurrency investors have put in the halving.
In fact, one prominent analyst proposed that because of the halving of its block rewards, Bitcoin has a high likelihood of reaching $288,000 in the next four years. This model has come under fire as of late by analysts like Alex Krüger, but the consensus among BTC holders is that the halving will lead to an irreparable change to the supply-demand dynamics of the Bitcoin market that boosts prices higher.
ETH 2.0 is a much stronger catalyst than the Bitcoin halving simply because it’s an uncertain and fundamental change.
— Ryan Watkins (@RyanWatkins_) May 13, 2020
While the effects of the Bitcoin halving are known in advance, the effects ETH 2.0 will have on the “tokenomics” of Ethereum are a bit more variable, as there are a number of factors at play within the upgrade that could restrict supply and could increase demand.
There’s also the chance the upgrade could glitch, and thus threaten the existence of the blockchain, though this likely isn’t a high probability event due to the amount of testing taking place.
What effect will it have?
The researcher didn’t indicate which way the catalyst in Ethereum 2.0 could push the value of ETH or the rest of the market, but many are convinced the upgrade will send prices flying.
Crypto-centric venture investor Adam Cochran explained in a 50-part Twitter thread that the introduction of the upgrade is almost certain to restrict supply while increasing demand, resulting in higher prices. Cochran specifically looked to two factors:
- ETH’s supply inflation will be sliced by more than 50 percent: The introduction of Ethereum 2.0 will replace the current Proof of Work (mining) model that the blockchain uses with staking, which will dramatically decrease the inflation of ETH’s supply by over 50 percent, according to Vitalik Buterin.
- Fundamental demand for ETH will increase: Due to Ethereum 2.0 making the blockchain much faster and adaptable, Cochran expects for the demand for ETH as a form of gas to increase: “With the release of ETH 2.0, we’re going to see ETH drastically increase its tx/s and therefore its commercial and consumer viability. Gas clogs, high transaction costs, long wait times in dApps all go away, even in a busy market.”
His analysis led him to the conclusion that there’s a good likelihood Ethereum 2.0 will create “the largest economic shift in society.”