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Ethereum is ‘about to undergo a massive network upgrade,’ Abra CEO says

Abra Founder and CEO Bill Barhydt joins Yahoo Finance Live to discuss ethereum outperforming bitcoin, institutional interest in crypto, and ethereum's upgrade.

Video Transcript

BRIAN CHEUNG: We are keeping an eye on price movements in the crypto space. Bitcoin jumping to almost 45,000 over the last day. We're actually seeing Ethereum move up higher as well, to almost 3,200. So a lot of movement in the Bitcoin space amid all the volatility across, effectively, all the asset classes over the last month. But of course, the bigger picture is so important here. And with Ethereum, so many projects hitting the blockchain.

So let's get an update on the state of crypto with Bill Barhydt, founder and CEO of Abra, alongside Yahoo Finance's David Hollerith for this conversation. And Bill, it's great to have you on the program. You run a crypto investment app provider based in the United States. And you have assets under management of just under $2 billion. What are you seeing in the crypto space? I understand that you feel Ethereum is going to rocket higher. Why is that?

BILL BARHYDT: Yeah, so Ethereum is super exciting to me right now. And first of all, thanks for having me. And yeah, so at Abra, we're seeing tremendous institutional interest right now in the crypto markets way more than last year. Last year, we saw a lot of high net worth money coming in. Now we're seeing a lot of institutional interest as well, particularly in Ethereum.

Ethereum is really establishing itself as what we call the world's computer, right? The backbone potentially for the decentralized web, Web3. And it's being used now in stablecoins. It's being used for NFTs. It's being used in DeFi to the tune of hundreds of billions of dollars total value locked, with tremendous transaction fees being generated. It's about to undergo a massive network upgrade.

Ethereum uses proof of work mining, similar to how Bitcoin works today. It's about to move away from proof of work mining to what's called proof of stake. And proof of stake has a lot of advantages in setting up Ethereum to scale and also consume significantly less electricity to mine blocks going forward. And that upgrade has a lot of people, including me, very excited.

DAVID HOLLERITH: Yeah, and Bill, this merge that's going on from proof of work to proof of stake, can you sort of describe, like, the significance of it? This is a fairly technical feat that's been happening.

BILL BARHYDT: Yeah, so let me break it down. So as I said, proof of work mining is this idea that a whole bunch of computers basically play a game against each other to find new Ethereum and also insert pending transactions into the Ethereum blockchain. That's also how Bitcoin works today. And you pay gas fees, which is actually Ethereum itself, in order for the right to insert your transactions. That whole process is about to be replaced.

In December, a new version of Ethereum, which we refer to as the beacon chain, went live. And it's running on its own right now. And this beacon chain uses proof of stake to validate transactions. And in simple terms, that means that people become validators, or nodes become validators of transactions, and basically, whether or not you validate a transaction is partially dependent upon how much Ethereum you stake and no longer dependent upon mining.

Now, in this summer, probably sometime in June or July, the beacon chain is going to merge into Ethereum. When that happens, Ethereum will begin validating transactions using this proof of stake model that I just described.

AKIKO FUJITA: So bottom line, Bill, what does this all mean from a price standpoint? I mean, it sounds like you see significant upside for Ether. How high do you think it can go by year end?

BILL BARHYDT: Yeah, so in the short-term, right now, Ethereum 2.0 is paying, I think, about 5% for staked Ethereum. That's when you lock up the Ethereum. Because no validators are also going to receive the gas fees or a significant percentage of them, the prevailing wisdom is that the effective rate on holding staked Ethereum post-merge could go over 10%, up to 12%.

As a result, I think the amount of Ethereum staked is possibly unlikely to explode, which means that the amount of Ethereum in circulation is going to plummet, which could have a significant impact on driving the price higher, not to mention the fact that Ethereum is already being used as the backbone for NFT, DeFi, stablecoins, et cetera, et cetera. So that has me via these network effects incredibly bullish on Ethereum. And I would not be surprised to see a melt-up-- a 5 to 10x run-up at some point this year, which would put us at well over 30,000 Ethereum.

Now, it's going to be very volatile, in my opinion. It could be that this gets delayed again. It could also-- that would be very difficult technically, by the way, so unlikely, but there's always a chance. But yes, I personally am very bullish and would not be surprised to see a blow-off top in the high 30,000s in the next 12 months.

DAVID HOLLERITH: And Bill, Bitcoin and Ethereum typically are considered, at least by investors, as sort of different assets, although I think, to a wider audience, a lot of cryptocurrencies do seem similar. I'm sort of curious. This move of Ethereum using a different cryptographic proof, do you think that, in any way, invalidates Bitcoin's use case here?

BILL BARHYDT: No, I think it hardens Bitcoin's use case. So in my mind, Bitcoin is the future global Reserve asset. And this is playing out now in what's happening in Russia and Ukraine, what happened a few weeks ago with the truckers in Canada. The idea of a hardened money that's not easy to upgrade, right-- we went through these so-called Bitcoin wars in 2017, where the network proved very hard to change. You want that. Like, you can't change the atomic structure of gold, and that's a key feature, right?

So we want Bitcoin to be hardened money as potentially the world's future Reserve assets. Ethereum is playing a very different role. It is acting as, effectively, the global computer of the future, right? It's being the backbone for this entirely new decentralized network. You hear this moniker, Web3 or Metaverse, and it seems to be the leader in terms of getting developer support and network effects for that.

However, as such, it is going to need to undergo upgrades. It needs to scale way better than it does now. This upgrade sets Ethereum up for that. And it's going to play a very different role from Bitcoin in the future.

AKIKO FUJITA: Well, Bill, we're going to have to have you back on the show, hold you to that $40,000 call, if it does, in fact, come. Good to have you on today, Bill Barhydt, Abra founder and CEO. And our thanks to David Hollerith for joining in on the conversation.