Top Wall Street investment firm Bernstein recently issued a note to investors.
7 reasons why Wall Street is bullish on cryptocurrencies
After a period of sluggishness, the cryptocurrency industry is on the verge of its next big event – the Ethereum Merge update, but it’s not the only “light of hope” in the digital asset landscape. In fact, even institutional investors are smelling signs of a recovery in the cryptocurrency space.
Wall Street’s top investment firm Bernstein recently released a report to investors outlining “seven factors” for the cryptocurrency market’s likely resurgence, poised to bring it back to or even beyond its previous heights. In the report, Bernstein & Co. analysts Gautam Chhugani and Manas Agrawal detail the potential catalysts behind the next cryptocurrency bull run.
1. Ethereum Merge Update
Over the next few days, Ethereum (ETH) will transition from a proof-of-work consensus model (PoW) to a more energy-efficient proof-of-stake system (PoS). While not everyone in the crypto community is supportive of this Merge update (especially the PoW “old die” looking to fork coins from Ethereum), all in all it will be a positive for Ethereum and the cryptocurrency market in general event. Bernstein agrees with this sentiment, noting that it is a potential growth driver for the cryptocurrency market.
2. Rollup increase
Among the reasons Bernstein cited also highlighted that rollups (ie: Ethereum’s second-layer platform that processes transactions off the mainnet) have seen considerable growth in active users and on-chain liquidity. Rollup is very popular in Ethereum transactions as a way to reduce costs and wait times, currently accounting for 15%-25% of all transactions on the Ethereum blockchain. Given the growth in Merge and rollup, the next forecast from Bernstein analysts may be less shocking.
3. Ethereum will replace Bitcoin as the “big brother” of cryptocurrencies
Can Ethereum really replace Bitcoin (BTC) and climb to the top of the cryptocurrency market? Not impossible. After all, cryptocurrency is still young as a technology, and Bitcoin’s rigid structure makes it constrained and not easy to scale or innovate. Chhugani and Agrawal emphasized that successful digital assets should be “innovation-driven” rather than “macroeconomic asset classes.” In their view, Ethereum has the innovative power to build the future economic structure of digital assets.
4. DeFi is back
Despite all the turmoil in 2020, the crypto community has enjoyed a “DeFi summer”, with these second-layer chains attracting huge investments and paying out huge returns to users. Analysts at Bernstein believe that these chains are optimized for scalability, making DeFi more accessible and affordable, and leveraging rollup as a key enabler for the DeFi industry.
5. Play-to-own game NFT (non-fungible token)
After the initial wave of hype, NFTs (non-fungible tokens) have struggled to find a stable long-term niche, but the digital goods and gaming space can indeed be said to be a “natural match”. “Play-to-earn” crypto games that reward players with tokens may evolve into a more lucrative “play-to-earn” model, in which players can use NFTs to prove the value of valuable game items ownership. The Bernstein team states that “crypto games will have their own unique culture… More than 1 million NFT avatars will be playable characters in multiple interoperable crypto games”. The authors note that many talented people are moving from the traditional gaming industry to Web3 gaming companies, supporting this point of view.
6. Tokens are designed with long-term value in mind
Bernstein analysts aren’t a fan of meme currencies. Instead, they are very bullish on new tokens that offer real technical applications and long-term value accumulation. “More sustainable token designs will restore retail interest in investing in application tokens,” the authors said.
7. Value accumulation at the application level
Historically, blockchains have accumulated value at the base protocol layer rather than the application layer. This is what analysts call the “fat protocol thesis”. But Bernstein’s report, detailing the increased scalability of application tokens, lower transaction costs and new appeal to retail investors, could ensure that blockchain’s application layer will see significant growth in the near future.
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