Summary
TLDR: Ether (ETH) has outperformed Bitcoin (BTC) with a 33% gain year-to-date, driven by factors such as deflationary supply, low amount of ETH held on exchanges, increased demand due to higher blockchain activity, new layer 2 networks improving scalability, potential revenue sharing for DeFi token stakers, and the upcoming Dencun upgrade in March. These catalysts are leading to increased value accrual to ETH.
Key Points
1. The deflationary supply of ether, which has not increased since the shift to a proof-of-stake consensus model in September 2022, is a key factor driving the cryptocurrency’s rally.
2. The amount of ether locked up is also significant, with ETH held on exchanges at an all-time low of 11%. More ether is being locked up in staking pools, decentralized finance smart contracts, and layer-2 solutions, leading to increased demand.
3. The upcoming Dencun upgrade of the Ethereum blockchain, scheduled for March 2023, is expected to bring a 90% reduction in layer 2 transaction costs and improved profitability of layer 2 networks. This upgrade will reduce congestion on the mainnet and drive higher volumes to the ecosystem.