A brief discussion on Ethereum’s “bubble” and “investment potential”

In recent days, there has been a trend in online articles that Ethereum’s current price has great concerns. This view believes that Ethereum’s current price is mainly due to the prosperity of DeFi, but believes that DeFi’s current prosperity is not based on solid demand. The current prosperity is mostly based on speculation. Once this speculative demand is shattered, the entire prosperity will disappear like the ICO of the year. Therefore, Ethereum’s current price foundation is not solid and is unsustainable.

In my opinion, this view sees some risks but does not see the more macro qualitative change. I think that although the current price of Ethereum is related to DeFi, it is to some extent a sign that Ethereum has proven itself to be the king of public chains.

1. Is DeFi crazy at the moment?

DeFi is a new thing, but it did not appear this year, but as early as 2017. After nearly three years of dormancy and development, it exploded on a large scale this year. I think the most fundamental reason for its explosion is that decentralized exchanges like Uniswap have greatly improved user experience and optimized operation processes, which has led to it being completely different from the past, resulting in a large number of projects being able to list coins freely, thus attracting speculators to participate.

This is indeed a bit like the ICO of the past, but at most it is just like the situation when ICO just broke out, but the popularity is far from reaching the level of ICO craze of the past. At present, only senior players are participating, and a large number of novice players are still watching from the outside. The most obvious sign is that various projects that are masquerading as sheep have not yet become popular on a large scale, and only occasionally there are imitations of star projects.

Therefore, if DeFi is hot now, it is at most the early stage of the bubble, and it is far from crazy. It is difficult to estimate how DeFi will develop in the future and what will happen, but I think it will last at least half a year. Because so far, we can still see various new projects that are really creative. When there are no creative projects, but only a large number of air coins emerge, that is when the DeFi bubble is about to burst .

Therefore, DeFi's boost to Ethereum prices will continue for some time .

2. The siphon effect caused by the king of public chains

In fact, in addition to DeFi, I think the more important point is that the current price of Ethereum reflects the subconscious recognition of the entire industry's investors for Ethereum as the king of public chains, which has caused a siphon effect on Ethereum. Investors have abandoned various public chains that they once favored, and funds have been concentrated on Ethereum .

Whether it is DeFi or the expectation for Ethereum 2.0, in my opinion, it essentially shows that after the test and development of the past few years since the big bear market in 2018, people have gradually realized that Ethereum is the real king of public chains. Its competitors have fallen behind in the process of hot spots and hype. The threshold for Ethereum to form is getting higher and higher, and other public chains have almost no chance to cross this threshold.

Let’s review the history through some data. Below I show the top ten digital currencies on January 7, 2018, January 6, 2019, and January 5, 2020:

From these three pictures, we can see the distinct changes in history:

In January 2018, the top ten cryptocurrencies that were considered to be competitors to Ethereum were: ADA, NEM, TRON, Stellar, and IOTA (EOS was not yet born at that time).

A year later, in January 2019, the most favored EOS was added to the top ten Ethereum competitors, while ADA, NEM and IOTA were eliminated.

A year later, in January 2020, only EOS remained among the top ten Ethereum competitors, and all the so-called "competitors" were eliminated.

Now, among the top ten Ethereum competitors, even EOS has been eliminated, leaving only ADA, which is making a comeback.

This is by no means accidental, but a consensus reached by the industry after a long period of market testing. In my article on July 14, “The Coming of a New Era: Ethereum Confirms to Become the King of Public Chains”, I wrote: EOS’s being squeezed out of the top ten marks the establishment of Ethereum’s status.

In this case, investors will certainly not diversify their funds to other public chains, but will definitely focus on Ethereum. This is the most fundamental, most driving and most sustainable factor .

Of course, there are still some investors who have illusions about other public chains, but I believe that these investors will wake up sooner or later and will rush onto the Ethereum express train, so the price of Ethereum will continue to rise .

3. The current price is less than one-third of the historical peak

In the bull market of 2017, the price of Ethereum once reached nearly $1,400. Now the price of $400 is less than one-third of the peak, so in any case, I don’t think this price is a big concern. Even if something unexpected happens and Ethereum falls back, it is actually a good thing for us long-term investors - we have more time and opportunities to invest regularly .