An analyst at investment management firm ARK Invest says Ethereum (ETH) could start gathering more bullish momentum as crypto markets turn to a risk-on environment.
In a new interview on the “For Your Innovation” podcast, ARK analyst Frank Downing says the dust is settling on crypto markets after months of bearish price action.
“I think we’ve seen something interesting just in the last month, which is when the markets were going down and we’re in this kind of capitulation cycle, you had assets at the riskier end of the spectrum, so ETH and the assets that were built on top of ETH vs. Bitcoin being sold very hard, not necessarily trading on the fundamentals, but the markets being fully risked.
It wasn’t until the last half of July that I think that started to change and we saw the bullish market on margins start to trade more on the fundamentals.”
A risky environment generally refers to a period when riskier assets like crypto and stocks are sold in favor of safe assets like the US dollar.
Downing then makes the bull case for Ethereum to center around its long-awaited transition from a proof-of-work consensus mechanism to a proof-of-stake mechanism, which is scheduled to happen in mid-September.
“In the case of ETH, it was mainly around the progress made around their transition, the transition of the network to the proof-of-stake consensus called The Merge. While this has been predicted for more than seven years since the network’s inception, we are now looking closer than ever to this transition actually happening…
[The latest testnet] showed the promise that the Merge will actually happen and so many parties that have this technical and execution risk in the past, as well as the changes in ETH tokenomics that reduced token issuance and the story about proof-of-stake consensus compared to proof-of-stake work have led to a lot of interest in buying ETH as a token.
And so, we’ve seen the ETH/BTC pair, or the price of ETH relative to Bitcoin, doing better, which has been a divergence from the risk period that we’ve seen. So relatively, [the] the market has returned to risk on these types of assets.”
According to Downing, the power of Ethereum is a net positive for the long-term health of the digital asset space.
“This is something we like to see, this long trend of ETH increasing in value relative to Bitcoin as a sign of the growing strength of the crypto ecosystem as a whole.
If you look at what we classify as the financial and internet revolutions compared to the monetary revolution which is embodied by Bitcoin, it represents roughly 50% of the crypto market and ETH is the dominant asset within that bucket. So seeing this strength is a net boost for crypto as a whole.”
Ethereum is trading at $1,480 at the time of writing, down 5.6% on the day.
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