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Why did Ethereum appreciate 200% in 2020?


Ethereum is the second largest cryptocurrency in terms of the current MarketCap. The asset completed five years of existence (on July 30) and more than doubled its Marketcap since the beginning of this year, despite having suffered a fall of almost 50% at the beginning of the year due to COVID-19 (on March 13).

The question that many investors ask is: "What made this cryptocurrency so valuable this year?"

The answer is linked to the reason for its fall in March of that year: COVID-19.

Due to the market's need for liquidity and credit, amid this outlier that we live in, the stablecoin and DeFi segments showed a great growth in 2020, and both have their main tokens dependent on the Ethereum Bockchain.

Growing demand for Ether

Ether (cryptocurrency of the Ethereum network) works as “fuel” for the maintenance of tokens and transactions on the Ethereum network. We could even make an analogy that Ether would be digital oil just like bitcoin would be gold.

The fact is that, since the beginning of 2020, several applications created on the Ethereum Blockchain began to be much more in demand (in particular the DEX, Stablecoins and Lending platforms).

This situation had a clear impact on the demand for ether and, as a consequence, generated a great appreciation of the asset (and vastly outperformed Bitcoin this year).

BTC vs Ethereum valuation in 2020

Growing demand for Stablecoins

Stablecoins has already passed the mark of $ 12 billion in terms of Marketcap in 2020, having started the year with less than 2 billion dollars in Marketcap, which implies a growth of more than 600% in that year.

This is tied to the search for liquidity in times of crisis.

As we explained in our report on the BTC crash in March 2020, in times of market stress, as now with COVID-19, there is an avalanche of liquidity at the beginning and then allocation in protection assets occurs.

It is natural to increase the demand for dollars in the market at the first moment of crisis in the traditional market, just as there was an increase in the demand for stablecoins in the cryptocurrency market (USDT, TUSD and USDC).

stablecoin demand chart

As a direct consequence of this, there was an increase in demand for Ether, since, of the five largest stablecoins on the market, all are ERC-20 tokens at least partially, that is, they use the Ethereum blockchain and consequently need ether to get around.

Growing demand for DeFi

Another consequence of the pandemic was the need for credit in the market, which caused several DeFi protocols to grow exponentially such as Compound and Maker, reaching the mark of more than 2.5 trillion dollars in TVL (Total Value Locked) in 2020.

This value only for loan protocols, given that other protocols like DEX (decentralized exchanges) are also showing great growth.

TVL Chart on DeFi
* TVL: These are the assets that are blocked on the platforms as collateral for credit operations, trading, etc.

As with stablecoins, the majority of DeFi tokens are also ERC-20 tokens and thus increasing their demand for the market also means increasing demand for Ether, culminating in the appreciation of this token. (given that limited offer).

Is it still worth investing in Ethereum?

I'm sure after explaining all these reasons why Ethereum values ​​itself, you were left with just one thought: "I missed an opportunity, but is it worth investing in?"

The answer is yes! ETH's potential has been little explored and there is still much to take advantage of. In fact, the network is undergoing a transformation: ETH 2.0.

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