Ethereum Risk-Reward Ratio Is Now Attractive, Brokerage Firm Explains
Analysts at research and brokerage firm Bernstein say Ethereum (ETH) now offers an attractive risk-reward ratio. Although Ethereum has underperformed compared to other major cryptocurrencies such as Bitcoin (BTC), Solana (SOL), and XRP for much of 2024, its strong fundamentals could set the stage for a potential rebound foundation.
Why is Ethereum in trouble? Bernstein analysts explain
Ethereum, the second-largest cryptocurrency with a market capitalization of over $430 billion, may be on the verge of a major price increase. Bernstein Analyst Sees ETH’s Fundamentals Keep despite its powerful poor performancemaking it an attractive investment opportunity.
Looking at Ethereum’s performance, Bitcoin and Solana have soared 125% and 122% respectively on a year-to-date (YTD) basis, while ETH is only up 57%.
In a client note shared today, analysts led by Gautam Chhugani highlighted several factors contributing to Ethereum’s troubles. One problem is that ETH has not yet become a store of value in the same way that BTC has. Additionally, leading smart contract platforms face increasing competition from low-latency layer 1 blockchains such as Solana, Sui, and Aptos.
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The note also noted that Ethereum’s reliance on layer 2 blockchains, including Optimism, Arbitrum, and Base, often redirects users away from the main Ethereum chain. This hinders user retention and limits the growth of transaction fees, thereby creating headwinds for ETH’s price momentum.
Is now the right time to buy ETH?
Bernstein analysts believe that Ethereum’s prospects could improve significantly, especially in light of Republican presidential candidate Donald Trump’s recent election victory. After Trump’s victory, the total market value of cryptocurrency surged by more than 45%, exceeding $3.5 trillion. Ethereum is one of the largest beneficiary Bitcoin is up 46% since the election, while Bitcoin is up 41% and Solana is up 36%.
Analysts also pointed out key developments that could support Ethereum’s future growth. They highlighted the increasing likelihood that Ethereum exchange-traded funds (ETFs) would gain approval under Trump’s crypto-friendly Securities and Exchange Commission (SEC). The analyst explained:
We believe that ETH staking yields may be approved under the new Trump 2.0 crypto-friendly SEC.
The analyst added that Ethereum’s current 3% yield could rise to 4% to 5%, which could be a attractive Investors’ returns in a falling interest rate environment. Additionally, the recently observed growth in the Ethereum ETF in the form of higher inflows could be beneficial for ETH.
Although the ETH ETF has temperature Since launching, they have recently outperformed Bitcoin ETFs in terms of daily inflows. For example, on November 29, the US Spot ETH ETF attracted Inflows were $332.9 million, while the Bitcoin ETF saw $320 million.
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In addition, Ethereum’s transition In September 2023, the Proof of Stake (PoS) consensus algorithm and the protocol’s destruction mechanism stabilized the total supply of ETH at around 120 million. Of these, approximately 28% are related to staking contracts, while approximately 10% are related to lending protocols or layer 2 bridging.
With a large portion of the total ETH supply (nearly 60%) unchanged over the past year, analysts at Bernstein believe the digital asset could benefit from favorable supply and demand dynamics. As of press time, ETH was trading at $3,644, down 1.8% in the past 24 hours.
Featured images from Unsplash, charts from Tradingview.com
