To ETH Or Not To ETH

The market speed-run of the last few months has seen many new narratives emerge in a short space of time. The imminent approval of a Bitcoin ETF is a major catalyst but the re-emergence of Solana as a leading Smart Contract Layer 1 has also played an important role in the mania. With high speed and slick UX, it has attracted a lot of crypto traders. Generous airdrops have helped drive interest.

With all the excitement there is one major player that has so far been left out: Ethereum. The grand old lady of Altcoins would usually be the front-runner. In previous cycles, after a BTC leg-up, ETH would follow. The wealth-effect would then spread to lower Marketcap coins on Ethereum and the whole market would rally. This time around this has not yet played out. Prohibitively high gas costs on Ethereum Mainnet, a fragmentation of applications and mindshare to the various Layer 2s and patchy UX for bridging has meant that ETH has lagged behind in the current run.

Is this going to stay this way? Maybe not. Ethereum supporters will happily remind you that since the migration from Proof-of-Work to Proof-of-Stake, known as the merge and an Ethereum upgrade known as EIP-1559, Ethereum has been a deflationary asset. Many of the most prominent projects emerging in the space use the Ethereum Virtual Machine (EVM) or in other ways engage with Ethereum. Even if this does not directly drive price, it has an immediate impact on Mindshare. Base layer improvements like Danksharding will increase Ethereum throughput dramatically. Improved UX across different Layer 2s will make it easier for users to return.

Maybe most interestingly from a macro-point, a BTC Spot ETF is likely to be the trigger on the road to an ETH ETF. Blackrock’s filing for it was a clear sign that it’s a question of WHEN, not IF. The prospect of a yield-generating ETF, since ETH staking yield will accrue to holders, will be enticing to a yield-hungy traditional-finance investment community. Even if markets have not been as kind in the last few weeks, this cycle is just beginning. ETH’s future looks bright.

In other news, markets continued to feel frothy but so far displayed resilience. Keep your stop-losses tight and enjoy the holidays. Merry Christmas and happy new year from the Coinrule team!