“Ether has an additional role as a currency through which users execute automated contracts. This is its real differentiating factor,” we insist at Fidelity. (Photo: 123RF)
THE KEYS TO CRYPTO. When an institutional person who has more than 4,000 billion in assets under management talks about investing, the least you can do is listen to what he has to say. Especially since, in this case, his investment analysis concerns the long-promised “bitcoin killer” cryptocurrency and marks a milestone likely to change the perception of ordinary people.
(Illustration: Camille Charbonneau)
This is not a book of revelations, where everything should be devoutly taken as Gospel, but the latest research report from the Digital Assets branch of the financial giant Fidelity could well spark some vocations. In less than twenty pages, the document is soberly titled “Ethereum investment thesis“. Naturally, all this remains for information purposes, take care to recall the liability clauses punctuating the report, the remarks having no commercial scope or intention of financial recommendation.
With the usual precautions taken, the Fidelity team is nonetheless exploring the potential of Ethereum both as a (legal) currency, a store of value and an investment providing (good) returns(s). And the rapporteurs’ assessments are unequivocal: “There is virtually no doubt that Ethereum is a leading blockchain and technology platform that allows developers to create decentralized applications, many of which are capable of doing things which could not be carried out on the Bitcoin network due to the superior programmability of Ethereum”, we note at the imposing asset manager.
This technical state has powered the largest number of applications, but also the most active in the digital asset ecosystem. Ethereum’s native token, ether (ETH), has for several years occupied the second place in the world among cryptocurrencies in terms of market capitalization, behind bitcoin (BTC).
“Greater than Bitcoin”
This question logically arises in the various communities of investors, institutional as well as individuals, namely all this technological dynamic, the swarm of developers and the millions of users of decentralized applications, does it translate into (financial) value? for Ethereum crypto?
Yes, Fidelity reporters demonstrate, both in theory and based on current data, an investor who buys or holds ETH does not obtain or hold just a simple digital token to interact within the limits of the Ethereum network. It is indeed a means of payment and, therefore, an “emerging form of money, similar to bitcoin”.
What if “it seems unlikely that any other digital asset could do better than bitcoin as a monetary good, because bitcoin is considered the most secure, decentralized and sound digital currency to date and any improvement would require sacrifice “, it is worth taking into account the different markets, use cases and even the countless communities in which Ethereum offers alternative functions compared to Bitcoin.
“While ether is commonly sent between addresses to transfer value in the same way as with bitcoin, ether has an additional role as a currency through which users execute automated contracts. This is its real differentiating factor,” we insist at Fidelity.
However, there is no question of going all-in on Ethereum. Because if its token proves capable of easily fulfilling the primary functions of a currency, the dimensions of ETH as a store of value or profitable investment are accompanied by more restraint.
As fascinating as the Ethereum blockchain may seem, it remains a work in progress. Significant updates have taken place, but more are still expected. “This introduces recurring technical risks and unknowns that degrade its prospects as a store of value asset,” the analysts note.
He continued that, although ether is used for various payments, the volatility of fees linked to its uses remains an obstacle to its large-scale adoption. However, notes Fidelity, no positive relationship is established between the growth in the number of Ethereum addresses (measure of adoption) and the stock price of the token.
Finally, on the investment level, the transition from Ethereum to proof of stake (proof-of-stake) now allows token holders to receive a return. Ether has become a fundamentally different asset since this update (The Merge). Not only does the network consume significantly less energy, it also provides passive income for those willing to lock up their ETH on the blockchain.
Valuing the token and estimating the evolution of the price is technically less difficult to model since this software change, because transactions, blocked deposits and other fees are more measurable. Nonetheless, “the different (price) catalysts are complex and nuanced, have changed over time with various protocol updates, and may still change in the future,” significantly. Otherwise stated, worthy of investment, Ethereum must still prove itself soon and assume more sustainability to deserve a more imposing allocation in portfolios.