ETH 2.0 Could Prove to be the Largest Economic Shift, Driven by Supply Shock & FOMO
Ethereum 2.0 might be months away still, having been in the works for a long time now with no definite date yet but enthusiasts are already very excited about what the future will bring.
Adam Cochran of Metacartel Ventures in his Twitter thread talked about why this could be the “largest economic shift in society.”
Short-Term Driving Prices
Rent seekers, large investors eyeing stable returns are the first economic case for Eth 2.0. With the new phase, when ETH switches to staking, Cochran says large investors will put money in the lock-up.
As we have seen in the crypto space, staking is the hottest trend, with nearly 80% of Tezos (XTZ) locked up for staking. And if 10% to 30% of all circulating Ethereum gets locked up, the supply shock could work in the digital asset’s behavior.
“Supply Shocks typically cause a drastic increase in the price of a good.”
The price spike because of scarcity would have these rent-seekers getting much higher returns from their fiat principle as such pushing them to go for a second round to buy and stake ETH.
“This is a ripple effect with diminishing returns where each round gets smaller and smaller in terms of its price impact” might not have the same impact as the initial round but some.
This heightened supply shock means the market starts to move upwards, creating FOMO among the retail investors who will “hammer in market buys to make sure they don't miss out.”
As we saw during the 2017 bull rally, retailers tend to flood markets and unlike the last time, we have increased cash onramps with millions of verified users on crypto exchanges like Coinbase.
“With no stop gap this time around, that means these users can all FOMO at the same time.”
Mainstream media headlines would further create a flurry of these buyers. This demand shock means everyone wants a piece of it. This, in turn, ignites FOMO and drives prices to new highs in the short term, said Cochran.
Long-Term Factors Driving Growth
In the long-term, other factors will build a strong “Background Rate of Growth.” These factors include actual demand from a faster network and whale cycle buying because the ROI rate is up.
According to Cochran, these whales will put more ETH into staking, creating more nodes which means proportionally lower payout. As a result, creating a race to buy more to maintain earnings rate.
Besides this insane demand and supply shock that send the price skyrocketing, Cochran believes, “burning for Flat Supply with EIP-1559,” is the most important reason for ETH2.0 driving critical growth.
This means more efficient payments and no miner cabals voting on fees and burning of BASEFEE. And all of this means “Blue Diamond Go Up.” Cochran said,
“It is the perfect combination of instant spikes, repetitive buying loops, competitive race conditions to drive up a short-term price, and just the right amount of background growth rate to catch that price before it falls, and offer a steady growing network thereafter.”
These are some lofty dreams for Ethereum like any other crypto enthusiast has of different cryptocurrencies. Many others have talked about the trillion-dollar case for Ethereum, but for now, the most pressing issue is the constant delay in Eth 2.0 and its full rollout could take years.