Looking at ETC again: What is its value?

Last week, Ethereum Classic (ETC) was in the news again for the first time in a long time. Despite maintaining a market cap of $3 billion, most people had already considered this coin a dead end. After months (more like years) of stagnation, ETC price rose by about 30% late last week. The coin started to attract attention not only from speculators but also from key figures such as Vitalik Buterin. What happened to bring it back to the forefront?

What is ETC?

ETC is a hard fork of the original Ethereum blockchain. In 2016, a hacker was able to exploit the original DAO, a venture fund built on Ethereum, and steal 3.6 million ETH. The community was divided on how to handle this incident, with one camp wanting to roll back the chain and the other choosing to make no changes. The original Ethereum chain was forked, and the old (unchanged) chain was rebranded as Ethereum Classic. At the time the two chains were identical, but since then they have developed their own roadmaps and visions.

The ETC path is to become very "Bitcoin-like," with a fixed supply cap for its currency (210.7 billion) and a deflationary release schedule (20% reduction in release every 5 million blocks). The chain also plans to stick with Proof of Work (PoW). Despite ETC's focus on stability, it has been the victim of at least four 51% attacks over the past few years, resulting in millions of ETC being double-spent. From 2018 to 2020, the chain's market cap was mostly below $1 billion, then rose to $10 billion in 2021 as the broader crypto market rose. Today, the chain is valued at around $3 billion and is a top 20 cryptocurrency.

What is happening now?

Late last week, ETC saw a big surge. The main reason seems to be a $10 million investment from one of the leading mining pools, Antpool, an affiliate of mining producer Bitmain. On July 26, Antpool announced the investment to promote application development on the ETC mainnet. Bitmain is happy to see ETC continue to grow, as some of its current mining machines will be completely useless when Ethereum moves from PoW to PoS. A large part of Bitmain's business comes from Ethereum mining, and they even just released a new Ethereum mining machine in late June.

97% of GPU mining revenue comes from Ethereum, while only 2% comes from ETC. GPU miners don’t have much choice after the merger. The daily reward for ETC mining is about $700,000, while Ethereum is $24 million. If a significant portion of Ethereum miners end up migrating to ETC, the hash rate will soar, causing the mining difficulty to soar, driving most miners out of profitability. The only way for most ETC miners to remain profitable is if the price of ETC rises by several orders of magnitude. It may be easier for Ethereum miners to sell their mining machines than to migrate to ETC after the merger.

Some supportive comments from Vitalik also helped boost ETC price action. Speaking to miners who want to continue using PoW after the merger, he directed them to ETC, calling it "a very good chain." ETC's price has historically surged when more attention has turned to it. The token doubled in June 2021 when DCG head Barry Silbert invested $50 million.

With the Ethereum merger tentatively scheduled for September 19, ETC is likely to continue to rise with Ethereum. The announcement of the September 19 merger during the all-core developer call alone caused ETC to rise by 24%, while ETH only rose by 15%.

Long-term fundamentals

Despite the price increase, ETC's fundamentals have not improved substantially in any way. Network usage remains poor. Active addresses have not changed substantially over the years and still lag behind Bitcoin and Ethereum. The number of active addresses is less than half of Cardano's.

Transaction volume is almost non-existent. The network has not seen any meaningful change in transaction volume since 2018.

Total Value Locked (TVL) is ~$200,000 spread across just 3 apps. To be fair it will be zero until April 2022, so hitting $200,000 might be classified as “explosive” growth?

Development activity has also not changed in many months. Current development activity levels are less than 1/10 of Ethereum or Cardano. It seems no one is actually building anything on ETC. If it hopes to survive strictly as a payment mechanism, it will face stiff competition from the entire crypto space.

Finally, the hash rate has been largely stagnant over the past few months. This will certainly be a statistic to monitor once an Ethereum merger occurs. Will a significant portion of miners migrate over despite the small revenue?

Summarize

ETC still has no real activity to speak of. Ultimately, price should have some fundamental connection to network usage and underlying economic activity. Unfortunately for ETC holders, it has neither. Many miners have been misled into moving to ETC due to very low profit potential. If a large portion of miners do migrate over, they may have a hard time staying profitable. ETC will likely continue to follow Ethereum with a higher beta, seeing a wave of price increases whenever there is major news on ETH. Still, based on fundamentals, it is unlikely that ETC will have any long-term viability and value.