Ethereum (CCC:ETH-USD) recently pulled back from recent highs of over $4,114 per ETH token. But, at $4,300 as of Oct. 30, it was up significantly from its recent lows. For example, ETH crypto bottomed out at $2,764 on Sept. 20. Prior to that, it hit a trough of $1,787.51 on July 19.
That means that Ethereum is now up over 130% from its July trough and up almost 50% (+48.8%) from its September low point. That’s quite a rally. But can it continue?
So far, there is good reason to believe it can. For one, ETH crypto has a new unique measurement of its value.
Total Value Locked (TVL) in Ethereum
Ethereum now has a huge Total Value Locked (TVL) metric. This measures the total amount of crypto tied up in Defi (Decentralized finance) apps and protocols including deposits that earn rewards, interest, new coins and tokens, fixed income, etc.
Analysts and journalists are now getting more comfortable with the TVL concept and it’s growing in popularity. Coindesk and Decrypt, for example, have posted recent articles on TVL, including some of its limitations.
There are critics of the measurement. For example, DefiPulse reports that the TVL in the Defi universe is just over $100 billion. That is much lower than the DefiLlama measurement of $243 billion.
Another critic of the Defi boom and TVL, in general, is that “slippage” and fees are fairly high in decentralized exchanges (DEXs). Slippage is what is normally known as bid-ask spread differentials in the stock market. For smaller stocks and in this case cryptocurrencies, the spread cost can be quite high.
Here is how that works. Let’s say you buy a crypto with a market order. The crypto trades for about $25. But when your fill order comes in, the price comes in at $25.50.
And if you were to sell it now, the bid price is only $24.50. That means there is a $1 immediate loss on its value of $24.50. That works out to a 4.08% loss on the purchase.
So, in a sense, the TVL for Ethereum can be somewhat illusory to smaller investors other than market makers or large participants in Defi liquidity pools.
Nevertheless, Ethereum’s usefulness in the Defi arena has been growing very quickly. Only 2 years ago, there was just $1 billion locked away in Defi apps. Now there is over 200 times that amount.
So TVL is a good measurement of Ethereum’s growth as a cryptocurrency used in Defi applications.
What to Do With ETH Crypto
Even though Ethereum is now near a peak, and the possibility of a pullback is high, to those investors who use average cost investing, this is still a good time to buy. That is because with this method you endeavor to invest on a regular basis with similar amounts of money. That way you can average your cost over a period of time.
The alternative is to try and time the market. This can be quite dangerous. Often just at the point when a stock or crypto is at a low, sentiment and recent news can appear to be very bad for the stock or crypto.
And there is the common saying that value investors often say that essentially boils down to “no one ever became rich by timing the market.”
Nevertheless, keeping track of Ethereum’s TVL over time should provide a good guide to the underlying value of ETH crypto. So the astute investor will start tracking Ethereum’s TVL every month or quarter. If it continues to rise quickly, expect to see ETH crypto rise commensurately.
On the date of publication, Mark R. Hake held a long position in Ethereum but not any other security mentioned in the article (directly or indirectly). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.