Viewpoint | EIP-1559 will cause ETH price to surge

Note: The original author is Bankless co-founders Ryan Sean Adams and David Hoffman.

Some people have recently asked me when I plan to sell my ETH.

I replied with a half smile, “Never”.

This is actually a very interesting question, have you ever thought about it?

When would you sell your ETH? Why would you sell it? Why would anyone want to sell it?

Here are some common answers to the question “Why sell?”:

1. “Because the target price was reached.”

2. “I need to buy something else.”

3. “Because it reached the top position, I want to buy it back later at a discount price.”

4. "To pay off the debt."

5. “Cash out.”

These are all good answers, and for most people they are probably the right answers.

But for me, the following is a better answer:

Never.
I will buy, hold, stake, and never sell my ETH.

Is never selling a crazy choice?

Tomorrow, we will do a blog livestream with Justin Drake for the third time. This time we will talk about ETH staking and the upcoming Ultra Sound upgrade:

1. EIP1559: The Ethereum network will burn approximately 10,000 ETH per day (time point: July 2021)

2. 1.0 and 2.0 network merger: ETH issuance will be reduced from 4.5% per year to 0.5%-1.0% (time point: Q1 2022)

What will the annualized return on ETH staking be after these events? Remember: after the merger, ETH stakers can receive both issuance and fee rewards.

Here is Justin’s model:

Estimated annualized return on ETH staking with fee rewards

Based on our “best case scenario” assumptions, we arrive at an annualized return on ETH staking of over 25%.

At the same time, the amount of new ETH issued by the global Ethereum network each year is only 0.3% at most.

Of course, 25% annualized returns won’t last long… it’s just too lucrative. Especially when you factor in the reduced execution risk and stronger narrative of these ultra sound upgrades, new stakers will flock in quickly.

But the decline in annualized returns will be caused by increased net buying pressure on ETH.

In other words, to get this 25% annualized return, participants need to hold ETH, which will bring new purchasing demand. In the long run, the annualized return rate of ETH obtained from staking will be reduced to about 5%, but the price of ETH may increase significantly as a result.

Justin summed up the impact nicely:

More rewards → more stake → more economic security.

The more fee rewards there are, the greater the incentive to stake (to collect those fee rewards), which brings more economic security to Ethereum.

Living off staking rewards

If you don’t have much need for money, if you don’t buy at the top or at the bottom, and you believe that ETH will continue to be a new form of currency in the long run, why choose to sell when you can stake it?

As the internet nexus of a new autonomous economy, staked ETH will be a productive asset with three magical properties: scarcity, reliability, and permissionlessness.

(1) Scarcity

The return on staking ETH is calculated in ETH, a non-sovereign ultra sound currency. There is no other bond in the world, and no other productive asset that can generate returns denominated in digitally scarce commodity currencies.

(2) Reliability

ETH rewards are paid to validators no matter what happens. Whether Ethereum's economy is hot or cold, growing or shrinking, ETH issuance is done at the protocol level (to compensate for security). This guarantees that ETH stakers will be rewarded with ETH. While Ethereum cannot guarantee a specific market value for ETH, it can guarantee that its security providers will be paid.

(3) No permission required

No one stands between you and the Ethereum protocol, you don’t need to ask for permission to get ETH rewards, you don’t have to wait for someone to sign your monthly salary, and you don’t have to wait for creditors to pay. Ethereum rewards its stakers with ETH in every block, and there are no other dependencies.

Another benefit of this strategy is that if you don’t sell your ETH, you won’t have to pay capital gains taxes.

Not for everyone…

The never-sell option isn't crazy, but it's not for everyone.

If you have a goal of pursuing fiat, if you need cash, want to reduce risk, or if you like to trade cycles or have something to buy, create a selling plan.

Because even Ethereum has the potential to fail.

It is possible that the entire Crypto system will have problems.

It is wise to protect yourself from the unfavorable factors.

Of course, you can also take a mixed approach! You can sell a portion of your holdings instead of all of them.

One thing is worth noting: ETH is not an asset like stocks or bonds, it is an underlying store of value with digital scarcity that will become increasingly financialized and sound. It is a productive asset that generates returns denominated in ETH, and these returns will increase dramatically over the next 12 months.

So why sell your golden goose? Hold on to the golden goose and sell the golden eggs!