The last few days have been extremely positive for Ethereum, with the world’s biggest altcoin surging on the charts to a new ATH of over $2,100 on April 3rd. How did this happen? How did ETH rise by more than 25% in 5 days, particularly at a time when Bitcoin is struggling to maintain a break through its psychological resistance level of $60k?
Well, the answer to that question can be found in the recent news update regarding Visa, one of the world’s biggest payments networks. According to a recent announcement, Visa will now be able to settle payments using the USDC stablecoin on the Ethereum blockchain. For the same, the firm will be using the services of Crypto.com.
What does this entail? According to Bankless’s David Hoffman,
“The revolutionary new feature is that Visa is using Ethereum to submit ‘final settlement’ transactions. Thousands of transactions can happen internally on Visa’s network, and then Visa can make a single, batched transaction to Ethereum that updates the balances of its partners that leverage Visa for USDC transfers.”
What is the significance of this news? Simply put, it is enormous, especially because it connects the realms of conventional finance and digital currencies. Furthermore, while this advancement is expected to spur the development of crypto-assets beyond speculation, a closer look reveals that it will also “drive massive demand for USDC as it enables crypto transactions through a more secure medium of exchange.”
Not only USDC transactions, also stablecoin transactions in general, are now poised to spread outside of cryptocurrency circles. Daniel Ferraro expressed this viewpoint in his most recent newsletter for IntoTheBlock, adding,
“Being able to easily transact in stablecoins in the real world incentivizes demand for crypto assets and protocols as it removes points of friction, such as having to cash out and withdraw to a bank account.”
USDC, it’s worth noting, has been one of the fastest-growing stablecoins in the market, with the daily transaction volume for USDC settled on Ethereum going from an average of under $20 million in March 2019 to nearly $3.8 billion per day in March 2021.
What of Ethereum though? According to Ferraro,
“One of the biggest beneficiaries from both of these news is Ethereum. The smart contract platform settles the majority of stablecoin volume, which requires its native Ether token to pay for fees on its blockchain.”
Simply saying that Visa will settle USDC transactions on the Ethereum blockchain is perhaps an understatement since what is expected to happen is that more and more activity will be moved onto Ethereum’s payment rails. It will be an “on-ramp,” as Hoffman called it.
However, think about it. While more and more activity does sound good, is it really? Look back at the summer of 2020 and the first few months of 2021. While the former saw DeFi mania grab the attention of anyone and everyone in the crypto-space, the growth spurt in NFTs has echoed a similar sentiment. And, thanks to both, Ethereum blocks have been consistently saturated for almost a year.
According to CoinMetrics, blocks have recently been 97 percent -98 percent complete on average, with full blocks expected to cause network congestion and result in high gas fees.
If Visa settles a portion of its purchases on the Ethereum network, this will be the case. This would have been the case if the much-anticipated EIP-1559 hadn’t been just around the corner. With the proposal to burn the base fee inversely to transaction activity, one would assume the availability of Ether to decrease as the number of transactions increases. Simply placed, the two will assist Ethereum in being a deflationary currency.
This has consequences for the scarcity of ETH and Ethereum. With many claiming that ETH’s press time valuation has yet to factor in the impending EIP and supply decline, one might contend that the crypto-value asset’s would skyrocket as soon as Visa’s volumes begin.
Optimism is still strong, as shown by the discovery that Options traders are betting heavily on the altcoin reaching $3,000 by the end of June.
Is it the start of $ETH season? Options market making some big bets into June.
3200 strike has a bullseye on it.
— Cantering Clark (@CanteringClark) March 31, 2021
And then, who knows? Maybe the crypto-community will finally see its fantasy of the Federal Reserve being rug-pulled by crypto coming true.
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