Will Ethereum Beat U.S. Treasuries As a Risk-Free Asset Class?

While Bitcoin has always stayed as a store-of-value for market players, Ethereum (ETH) is finding rising institutional acceptance recently. As Ethereum moves towards a Proof-of-Stake (PoS) blockchain model, analysts are turning ultra bullish on the future of Ethereum.

Popular macro analyst Natasha Che explains how Ethereum is emerging as a risk-free asset class. She notes that ETH has the potential to become the new government bond. Natasha notes that the Proof-of-Stake (PoS) Ethereum blockchain will be a dominant blockchain wherein staked ETH will replace U.S. Treasuries as a risk-free asset class.

Currently, buying U.S. Treasuries is same as taking up an indirect share of the U.S. GDP. Thus, the investment risk here is much lower than any other asset in the market. All other asset classes like bond, stock, and property determine their price basis based on the U.S. Treasury yield.

The Rise of Crypto and ETH is Changing the Outlook

The analyst notes that Ethereum is one such public blockchain capable enough to power the real economy. Explaining further, Natasha notes that the Ethereum blockchain collects a gas fee for any ETH and ERC20 transactions on the network.

Thus, with rising network activity, the fee surges accordingly. This is similar to collecting VAT o all economic activity happening on the Ethereum blockchain network. Currently, the rising of DeFi and NFT is fueling new economic activity on the Ethereum blockchain.

The interesting thing with Ethereum is that it can collect taxes from people across the globe. Thus, as Ethereum integrates with “real economy”, the fee revenue will start tracking the amount of real economic activities happening worldwide. As a result, the Ethereum gas will start contributing to the world GDP growth. Analyst Natasha Che further explains:

Remember why US treasuries are considered risk-free assets? Cuz they are backed by tax incomes from the biggest economy in the world. But since gas fees are “tax incomes” from the entire world economy, ethereum can single-handedly beat US treasuries at the risk-free asset game.

She further notes that as the Ethereum blockchain attains a transition to Proof-of-Stake (PoS) model, it will create a new revenue stream for ETH stakers. Moreover, unlike Bitcoin’s PoW model that requires heavy investment, anyone can stake Ethereum. Natasha notes that this will be as simpler as buying treasury bonds.

Although this will take years for Ethereum to accomplish it, “if ethereum keeps its status as the dominant smart contract chain, and grows to power more and more real activities on the world scale, over time the yield should track global growth + global inflation”.

However, one caveat to this entire assumption is that the ETH supply growth should be higher than the inflation at any given point in time. At present, the ETH supply growth is 4.5% a year. And the inflation of fiat currency is 2-3% a year.