Ethereum, the second-most popular cryptocurrency, has lost roughly half its value this year. Each token is now trading at US$2,200 (C$2,800), far below its all-time high. However, a proposed upgrade to the Ethereum network that is scheduled to go into effect on August 4th could trigger another bull run.
Here’s a closer look.
Ethereum EIP 1559
Developers regularly consider proposals for enhancements, changes, and upgrades to the network. Ethereum Improvement Proposal (EIP) 1559 was introduced recently and has now been locked in for August 4th.
The proposal recommends a new way to handle fees on the network. It allows the network to burn some fees during every transaction to lower costs for users. That means using the network could get cheaper. However, it also means that some outstanding Ether will be regularly eliminated from circulation.
Impact on valuation
There is currently 116 million Ether in circulation. Since its inception, the number of tokens on the network has only expanded. EIP 1559 changes that for the first time. Now, some tokens will be regularly eliminated.
Meanwhile, demand for Ethereum-based applications has skyrocketed. There are more active accounts on this network than on Bitcoin at the moment. On June 28, there were 926,900 active addresses on the Ethereum network, compared to 618,900 addresses on Bitcoin. NFTs remain popular, while decentralized finance (DeFi) applications are as popular as ever.
Effectively, Ethereum faces record-high demand just weeks away from an upgrade that could limit its supply. This imbalance could be the catalyst for Ethereum’s next bull run.
How to buy Ether
Canadian investors can add Ether to their portfolios easily. There are four Exchange-Traded Funds (ETFs) that hold Ethereum currently. The best is probably the Evolve Ether ETF (TSX:ETHR).
Each unit of the fund represents 0.00362261, which is currently worth $9.96. Altogether, the fund has $41.3 million in assets under management.
Evolve stands out because of its lower management fees (0.75%). With over $1.8 billion in assets under management, Evolve is one of the largest asset managers in the country. It was also the first to market with an ETH ETF. Since the fund qualifies for registered accounts, you could hold it in your Tax-Free Savings Account (TFSA) to minimize capital gains liabilities over the long term.
This fund is a convenient option for investors looking to bet on the network before the big upgrade on August 4.
The crypto industry is prone to boom-bust cycles. The price of popular tokens like Ether skyrocket for a year, decline sharply, and spend a few years range bound. That seems to be happening right now.
However, a major upgrade to the Ethereum network on August 4 could change the way fees and supply are handled. Not only will this make the network easier and cheaper to use, but it will also limit the supply of new tokens in circulation.
Meanwhile, demand for decentralized apps and financial products is expected to expand. This supply-demand gap could push the price higher.