A New Bull

“The Ethereum Killer is Ethereum” — Vitalik Buterin

Will there be another Bitcoin? No. Will there be another Ethereum? No.

Bitcoin (BTC) and Ethereum (ETH) aren’t stocks, companies, or your favorite sports team. They are a utility. Think gold for Bitcoin and the World Wide Web for Ethereum. Each has its use, each creates new ecosystems, but looking at them in the market as a competitor to others is simply wrong.

Ethereum is comparable to the World Wide Web. Like the World Wide Web, applications are built on top of a layer (Ethereum blockchain) for the end-user.

Decentralized Finance, or DeFi, is probably the strongest use case for these types of apps, currently. But the use of the ETH blockchain is limitless: supply chains, art, e-commerce, gaming, etc.

So, how do we value the Ethereum network? Like BTC, we can use network effects (described by Metcalfe’s law) as a valuation metric

Metcalfe’s Law states, the value of a telecommunications network is proportional to the square of the number of users of the system.
— Robert Metcalfe, inventor of Ethernet

It’s hard for the human brain to conceptualize network effects. We can see network effects in applications such as Facebook which have given way to several multi-billion dollar businesses: Whatsapp, Instagram, Facebook Messanger, Oculus. Each line of business within Facebook creates its own network of profitability, for example, Facebook ads used for e-commerce businesses or games created on the Oculus engine.

In my previous article, we looked at BTC logarithmic levels which charts Metcalfe's law. This next chart might blow your mind. You will see below PlanB’s BTC stock-to-flow chart next to the time-shifted S2F chart of ETH.

The difference between BTC and ETH is that BTC has a fixed supply of 21 million. ETH continues to produce more ETH daily.

Ah well, that is until the launch of EIP 1559 later this month.

EIP 1559 stands for “Ethereum Improvement Proposal” and it is an update that is set to go live in July 2021. It will change the fee structure of Ethereum and this change will see gas fees split into two. Both of these fees will be transparent for users. It will include a tip from the sender and a base fee which is then burned.

In essence, more ETH will be burned than created. This could turn ETH into a deflationary asset. In another article, we’ll dig deeper into the possible effects of EIP 1559 and “The Merge” (another exciting change coming to ETH). For now, we can assume what a high in-demand asset with a decreasing supply means for price…