Ethereum’s Risk-Reward Ratio Considered Attractive by Analysts at Bernstein
Ethereum (ETH) presents an appealing risk-reward ratio, according to analysts at Bernstein. Despite underperforming compared to major cryptocurrencies like Bitcoin (BTC), Solana (SOL), and XRP in 2024, Ethereum’s robust fundamentals may indicate a potential price rally.
Why Is Ethereum Struggling? Bernstein Analysts Explain
As the second-largest cryptocurrency with a market cap over $430 billion, Ethereum could be poised for significant price movement. Bernstein analysts assert that ETH's strong fundamentals remain intact despite its underperformance, making it a noteworthy investment opportunity.
Year-to-date (YTD), Bitcoin and Solana have increased by 125% and 122%, respectively, while ETH has only risen by 57%.
Analysts led by Gautam Chhugani identified several challenges for Ethereum. One concern is that ETH has not established itself as a store of value like BTC. Additionally, competition from low-latency Layer 1 blockchains such as Solana, Sui, and Aptos is increasing.
The reliance on Layer 2 blockchains, including Optimism, Arbitrum, and Base, diverts users away from Ethereum's main chain, affecting user retention and transaction fee growth, which hinders ETH's price momentum.
Is Now The Right Time To Buy ETH?
Bernstein analysts note that Ethereum's outlook may improve significantly following Donald Trump's election victory. Since the election, the total cryptocurrency market cap has risen over 45%, exceeding $3.5 trillion. Ethereum gained 46%, outpacing Bitcoin’s 41% and Solana’s 36% during this period.
Key developments that could support Ethereum's growth include an increased likelihood of staking yield approval in Ethereum ETFs under a Trump-led Securities and Exchange Commission (SEC). Analysts stated:
We believe, under a new Trump 2.0 crypto-friendly SEC, ETH staking yield will likely be approved.
They anticipate Ethereum's current yield rate of 3% could rise to 4% to 5%, presenting an attractive option for investors in a declining interest rate environment. Recent growth in Ethereum ETFs via higher inflows could also benefit ETH.
Despite a lukewarm launch, ETH ETFs have recently outperformed Bitcoin ETFs in daily inflows. On November 29, spot ETH ETFs in the US attracted $332.9 million in inflows, compared to $320 million for Bitcoin ETFs.
Ethereum's transition to a proof-of-stake (PoS) consensus algorithm in September 2023 and its burn mechanism have stabilized the total supply around 120 million ETH. Approximately 28% is tied in staking contracts, and about 10% is in lending protocols or Layer 2 bridges.
With nearly 60% of the total ETH supply remaining unchanged in the past year, Bernstein analysts believe favorable demand-supply dynamics may benefit the digital asset. At press time, ETH trades at $3,644, down 1.8% in the past 24 hours.
