What Might Restart the Crypto Bull Market? Bernstein Has Ideas
Wall Street investment firm Bernstein last week listed seven predictions that could reignite the crypto growth cycle.
1. The Ethereum Merge is successful
Even though the switch from proof-of-work to proof-of-stake is just days away, there remains a healthy bit of skepticism, said Bernstein analysts Gautam Chhugani and Manas Agrawal. They believe it will happen between Sept. 10 and Sept. 20, and it will be a positive catalyst.
2. Rollups to bring the next wave of crypto user demand
Chhugani and Agrawal said there has been a notable increase in user numbers, on-chain liquidity and transactions on rollups such as Optimism and Arbitrum, with transaction activity on rollups now making up around 15%-25% of all Ethereum transactions. Rollups are Ethereum layer 2 protocols that help process transactions separately from the main network to help increase speed and lower costs.
3. Ether flips bitcoin as the top cryptocurrency
The most asked question by investors is when will the ether (ETH) market cap eclipse bitcoin’s (BTC) market cap, the note said. For digital assets as an asset class, what is more important is that it becomes more of an “innovation-driven, structural trend rather than a macroeconomic asset class.” Ether represents this “innovation-crypto,” and if it succeeds in building the blockchain digital economy, ETH could be adopted as digital money, the team argued.
4. DeFi on rollups brings back the DeFi summer
The summer of 2020 was the first “DeFi summer,” but since then the sector has underperformed Layer 1 chains, the analysts said. However, Layer 2 scalability is now making DeFi affordable again, noting that exchange Uniswap now makes about 10% of its fees from rollups.
5. NFTs pivot to gaming and play-to-earn becomes play-to-own
“Crypto games will have their own unique culture,” said the Bernstein team. “Over a million NFT avatars will become playable characters across multiple interoperable crypto games.” Chhugani and Agrawal are seeing a big talent migration to Web3 game development from traditional gaming studios – a strong leading indicator in their opinion.
6. Token economic designs start focusing on value accumulation
“More sustainable token designs will bring back retail interest in investing in application tokens versus the latest fast blockchain or retail meme coins,” they said.
7. Fat protocol thesis becomes the fat application thesis
The fat protocol thesis suggests that value in blockchains would accumulate at the base protocol layer, rather than at the application layer. Bernstein said that the “long-tail of application tokens” will grow thanks to enhanced scalability, economical transaction costs, better user growth on rollups, improved token value accrual, and retail interest to invest in applications that they use.