TLDR: ETH holders are struggling with a midlife crisis. It feels as if the new kid on the block from the previous two cycles has become a veteran. But looking a bit closer at the charts and at upcoming developments, there is no reason to think that ETH won’t bounce back. In terms of price, Ethereum is right where it is expected to be at this stage of the market cycle.
Like many crypto bros and gals, ETH holders breathed a sigh of relief after Trump got elected. At the very least, their ETH bags suddenly got lighter. The Trump victory meant that the risk of excessively tight US regulations and even crackdowns on smart contract protocols is behind us. Unburdened by what has been, the US crypto industry can now put the pedal to the metal and LFG. Right?
Indeed, ETH started pumping post-Trump victory. Still, the initial ETH enthusiasm dampened quite quickly. Still, at the time of writing, ETH is up 26% since the Trump pump. Nothing to scoff at. But BTC is up 30%!
To gain some perspective, as always, we zoom out.
This is ETH measured in dollars. A lovely wedge pattern is forming. Based on the likelihood of such patterns, a break to the upside is likely, and it’s no longer away than a month or three.
Let’s also zoom out in a different way, across coins. Is ETH performance out of line with other coins? In other words, is it altcoin season?
It’s Not Altcoin Season
If 75% of the Top 50 coins performed better than Bitcoin over the last season we call it Altcoin Season.
Currently, it’s not altseason. Some altcoins are doing great compared to BTC, but most don’t.
Currently, only one third of altcoins are outperforming ETH. Conclusion: ETH underperformance versus BTC is in line with the rest of the altcoin market.
The Dynamics of the Past Bear and Early Bull
Still, it feels as if ETH is lagging. Why is that? It’s because we obviously focus on the altcoin winners of the recent 12 months or so – and compare these to our golden boy Ethereum. Notably, Solana and memecoins, which have outperformed ETH. But remember that they were in the dust, truly clobbered, in the depths of the bear market. Sure, they have climbed a lot – but they came from much further down than ETH.
Many of us bought ETH during the bear market, knowing that whatever happens, ETH will survive. Most of us were hesitant to go into SOL, it was almost written off. When it turned out it wasn’t, investors had to reassess their thesis and rotate some of their ETH stack into SOL and memes.
At the current point in the cycle, it seems as if every investor is toying with the thought of rotating their ETH into something else.
As you may know, bottoms happen around the time everyone is contemplating selling. At some point, only ETH bulls are left and there’s no one left to sell. If a buyside catalyst emerges at such a time, the price will shoot up.
One such catalyst comes from the American Ethereum Spot ETFs – more specifically, the way they have started behaving after the Trump victory. While they disappointed in the first months of their existence, the US elections have done them a lot of good.
What we are seeing is a bullish divergence between sentiment and fundamentals (ETF inflows).
RSI ETH/BTC Oversold
Ok, now let’s look at a chart that pains the eyes of Ethereum maxis: the price of ETH expressed in BTC.
This is the monthly chart of ETH/BTC. Looking at the multi-year trend for ETH/BTC we see that it is characterized by sharp upswings and longer grinds down. Not unlike the bull market and bear market cycle of BTC versus the dollar.
On the same multi-year scale, we can distinguish an uptrend. The bear market bottoms were marked by an ETH/BTC ratio of:
- 0.0076 in November 2016
- 0.0175 in January 2020
- 0.023 in December 2020
- 0.034 currently
This is a clear uptrend. It will be interesting to see if this trendline holds, of course.
On the same chart you can see how the RSI (relative strength index of ETH/BTC). A bounce from here would not be unexpected, as ETH seems to be undervalued currently in BTC terms. In fact, it’s close to being oversold (close to a value of 30). This is no guarantee that the price will bounce back, but in market environments which have bullish fundamentals, it’s a good signal that price is bottoming.
Market Cycle Comparison
What many people forget or don’t know, is that in the 2020/21 bull market BTC was also front running ETH. BTC broke its all-time high mid-December 2020, while ETH wasn’t there yet.
It’s worth noting that ETH was slow in the fall of 2020, despite the catalyst of DeFi summer, which had propelled a new use case for ETH. It took some time for the price to catch up with the network activity.
Talking about network activity:
- The ETF net flow has turned positive.
- 42% of ETH supply is locked up in smart contracts.
- Ethereum is a net zero inflation asset since the Merge. The long run may be deflationary.
Conclusion: ETH is performing similarly compared to the previous cycle. If history repeats (it never does exactly) then a breakout beyond all-time highs is only six weeks or so away.
Midlife Crises are Good
In the hyper competitive landscape that is crypto, no coin is untouchable. Every coin will have to face contenders, and fight for its dominant spot in its niche. Bitcoin has had to deal with its clones and competitors, and Ethereum too – and still. It has to prove that it can stay the preferred chain for more corporate-oriented smart contract applications and real-world assets on chain.
No project can become complacent. And while Ethereum maxi’s in 2021 were perhaps a tad to self-assured, Ethereum developers haven’t been. The successful Merge of 2022, the successful scaling to corporate-focused Layer 2s such as Base, and some new developments – such as Beam Chain, more on that below – are pointing in the right direction. It appears unlikely that Ethereum will lose its leading brand recognition, huge ecosystem of dapps, and deep liquidity.
Recent Bullish Development 1: Beam Chain
Beam Chain is an ambitious attempt to make the Ethereum network more efficient, secure and user-friendly. At the heart of the proposal is the integration of zero-knowledge technology, or ZK-SNARKs.
According to prominent Ethereum developer Justin Drake, this will not only allow Ethereum to process transactions faster, but also provide instant finality. No more waiting times, no more uncertainty about whether your transaction is actually confirmed. Within four seconds, everything becomes final. Some other proposals:
- Drake wants to lower the threshold for joining the network as a validator from 32 to 1 ETH.
- Drake wants to get rid of MEV – Maximal Extractable Value – a persistent problem where some participants extract added value from transactions at the expense of others.
- The proposal is quantum computer proof. According to Drake, the risks posed by quantum computers are becoming increasingly realistic. By integrating ZK-SNARKs, Ethereum aims to stay one step ahead of this technological threat.
In short, Beam Chain is not just another upgrade; it is a strategic move to prepare Ethereum for the next decade. This will take years, of course.
Recent Bullish Development 2: Staked ETH ETF in the Cards?
Currently, there are no US Ethereum ETF’s that compound staking rewards. This is of course a waste, as it leaves out an essential ingredient of the Ethereum’s attractiveness as an asset: the yield.
Will this change after Trump will take office? An interesting development is that ETF provider Bitwise has acquired Attestant, a well-known Ethereum staking service provider. Attestant specializes in non-custodial staking services.
The acquisition by Bitwise, a firm known for its Ethereum ETF offerings, suggests a strategic move to integrate staking into their ETF ecosystem. This could pave the way for an ETH staked ETF, offering investors exposure to Ethereum while earning staking rewards, potentially around 4% annually.
Conclusion
In bull markets, common wisdom of seasoned traders is not to over-trade and overcomplicate things. Coins start popping up like popcorn left and right. Just because your coin is still sitting still, doesn’t mean it won’t pop. Something similar seems to be going on with ETH. Its dominance in the Layer 1s for smart contracts suggests that its time will come, and the charts suggest it might come in the coming two months. Trading your ETH for BTC two years ago obviously wouldn’t have been a bad idea. But to do it now, right when it appears to be darkest before dawn? Listen, nobody said this crypto thing was going to be easy!
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
