The release of Ethereum 2.0 in the imminent future is critical for the momentum of Ether, as the network upgrade would significantly increase the transaction capacity of ETH. This would allow the new DeFi cycle, if it emerges, to last for a long period because it would reduce the risk of network clogs and high transaction fees. Since Ethereum 2.0 supports staking, allowing users to allocate 32 ETH to the network in return for incentives, it could decrease the circulating supply of ETH across exchanges.
According to Ethereum co-founder Vitalik Buterin's blog post titled "Why Proof of Stake," staking on Ethereum will reward users with a 15% return. Because the rate of return is based on ETH holdings and not the U.S. dollar, if the price of ETH continues to increase, then the staking incentives increase with it. As such, analysts expect more investors to accumulate ETH to stake it, which would decrease the sell-side pressure on it.
The market and the community have anticipated Ethereum 2.0 for several years, but challenges have delayed its release. Ethereum 2.0 has required several testnets with an immense amount of testing due to the complexity of the upgrade. Developers behind Ethereum 2.0 wrote on the Medalla testnet's Github page:
“Before such a mainnet can be launched, we need testnets that mimic mainnet conditions as good as possible. This requires us to have stable, long-term, and persistent testnets up and running that are supported by not only one client but multiple clients, ideally, all clients.”
The sentiment around Ether has become increasingly bullish because the launch of Ethereum 2.0 coincides with various favorable catalysts for ETH. A pseudonymous cryptocurrency trader known as “Loma” pinpointed the fact that Ethereum 2.0 will remove about $1 billion from the market. While supply drops, the rally of Bitcoin is bringing significant capital back into the cryptocurrency as the ETH/BTC trading pair is forming a bottom formation.
The excitement around Ethereum 2.0 has intensified after Buterin's personal wallet sent 3,200 ETH to an Ethereum 2.0 deposit address. According to the official Ethereum 2.0 release notes by coordinator Danny Ryan, if there are 16,384 deposits of 32 ETH seven days prior to Dec. 1, the Ethereum 2.0 upgrade can commence. After years of research, testing and implementation, there is finally a hard date for the release.
The confluence of Ethereum 2.0 nearing, which would benefit the entire Ethereum and DeFi ecosystem in terms of scaling, and the strength of the ETH/BTC trading pair makes a rally in November and December more likely. There is also the narrative that ETH surged significantly in January 2018 to its all-time high of $1,419, almost a month after BTC reached its record-high at $20,000.