An analyst at the asset management giant Bernstein thinks Ethereum’s risk-to-reward ratio “looks attractive” given ETH’s relative underperformance recently.
Gautam Chhugani, the managing director of Bernstein’s global digital assets division, notes that Ethereum’s total supply has remained mostly stagnant since the network transitioned to proof-of-stake and adopted a burn mechanism.
“Yet, Ethereum’s underlying transaction fees drive a steady yield of ~3% (in ETH terms) to Ethereum stakers. This keeps ~28% of ETH supply locked in staking contracts. Further, another ~10% of ETH remains locked in Deposit/Lending contracts on the blockchain and bridged to layer-2 chains. ~60% of ETH has not changed hands in the last year, showing [a] resilient investor base. This creates favorable demand-supply dynamics for ETH.”
Secondly, Chhugani notes that Ethereum exchange-traded funds (ETFs) have been picking up momentum, which he says could further strengthen the asset’s demand-supply dynamics.
The analyst also speculates that ETH ETFs could soon involve staking yield.
“The ETH ETF approval excluded the ability of asset managers to offer the underlying ETH yield to ETH ETF holders, due to regulatory limitations. We believe under a new Trump 2.0 crypto-friendly SEC, ETH staking yield will likely be approved.”
Lastly, Chhugani also notes that Ethereum’s blockchain activity is surging, noting the network still accounts for 63% of total value locked (TVL) in blockchains.
TVL refers to the amount of capital deposited within a protocol’s smart contracts and is often used to gauge the health of a crypto ecosystem.
The analyst acknowledges that Solana (SOL) has taken the lead in terms of retail users, but Ethereum remains ahead in terms of institutions.
ETH is trading at $3,583 at time of writing.
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