Another week, another crypto market milestone. After briefly flirting with the symbolic $3,000 barrier, Ethereum definitively sailed past it on February 25, going on to chalk up seven-day gains of around 15%.
Following the recent Bitcoin rollercoaster that a week ago sent it past $50,000 and quickly sailed through the $60,000 mark this week, speculation is rife that an ether-based ETF approval may be the primary driving force behind the ETH rally. However, while the markets tend to view ETH as the smaller younger brother of BTC, to assume that the two assets are propelled by the same sets of forces, given their vastly different ecosystems, would be an oversimplification.
The narratives around BTC prices are relatively straightforward. The historic ETF approval and the halving event, which only rolls around every four years, have created a supply squeeze that’s carrying through into rising prices.
So, if ETH is due an ETF approval, then the logic of assuming a corresponding rally is understandable. Moreover, it’s difficult to ascertain how much of ether’s “ETH moment” could be attributed to bullish BTC action, given that a rising BTC tide can lift all crypto ships.
There are three opposing viewpoints as to what drives ETH’s growth, each supported by a recent innovative breakthrough — and all three agree on the wider impact the ETH rally stands to have on the crypto space overall.
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ETH Is Catching Up To BTC
I reached out to Elitsa Taskova, Chief Product Officer at Nexo, for comment. She has crunched the numbers and shared that ETH is showing signs of outperforming BTC.
“While BTC has captured the spotlight leading into April’s halving, ETH has actually outperformed it by 7% over the last 14 days and 11% over the previous 30,” Taskova said. “ETH has had some catching up to do, however, given that BTC has comfortably outperformed it in the past 12 months.”
ETH Needs To Rally On Its Own
However, Eugene Chung, VP and Head of Institutions at Bybit, believes that the ETF excitement may not be enough to prop up ETH prices in the long run.
He told me, “If you look at BTC, about 70% of the price increase happened between the announcement of BlackRock’s ETF filing and the approval by the SEC. So, in the short term, the final decision of the ETH ETF doesn’t matter, because traders will buy based on the narrative and speculation surrounding that decision.”
Even so, if ETH is outperforming BTC, that points to there being more at play than the pure ETF news and the BTC effect. And this third possibility seems most likely, given the veritable hive of activity and interest that’s happening around the ETH ecosystem right now.
It’s About The Smart Value
Szymon Sypniewicz, co-founder and CEO of Ramp, agrees that there are reasons to be excited about ETH.
In our interview, he stated, “Given their respective historical paths, it’s easy to compare ETH to BTC. However, with ETH’s distinct value proposition, especially considering its smart contract capabilities and the current upgrade roadmap, it’s possible that we’re about to witness something revolutionary.”
Forging Its Own Path
ETH’s upgrades have become a community event in their own right, but the next one is perhaps the biggest since the shift to proof of stake two years ago. It will introduce so-called ‘proto-danksharding,’ an innovation that will finally enable ETH to scale from fifteen transactions per second to hundreds. Analysts at JPMorgan forecasted in December that this upgrade will lead ETH to outperform BTC in 2024, although perhaps it wasn’t anticipated to be quite this early in the year.
However, there is a clear rationale for assuming that increased throughput will have a bullish effect on ETH. The last few years have seen a proliferation of activity on L2s (Layer 2s), which use ETH tokens for settlement on ETH as the base layer. ETH validators currently receive more than three-quarters of transaction fees paid on L2 platforms as ETH, demonstrating a clear line between demand for ETH at the settlement level and L2 activity. Increasing capacity is simply a way of meeting this demand.
Staking is another area where ETH differentiates itself from BTC, and demand for staking has never been healthier. Currently, over 25% of ETH is staked, meaning it’s locked up out of circulation, putting further constraints on supply. At the same time, there are around fourteen times more validators waiting to enter the validator set than are waiting to exit it, indicating demand for staking is far outstripping the available slots.
One of the factors driving this is the increasing appetite for restaking on EigenLayer, a restaking protocol built on Ethereum, which now holds over $9 billion worth of ETH value generating double-bubble yields for participants.
If all this weren’t bullish enough, ETH’s deflationary supply following the Merge in 2022 means that more ETH is now burned than minted, creating an ever-increasing pressure on supply, as demand continues to rise. Furthermore, whereas BTC frequently comes under fire for its lack of utility, including most recently from cynics at the ECB, ETH is demonstrating that it does indeed have legitimate utility in transactions and staking.
Given all the factors at play, a more bullish projection for ETH in 2024 seems entirely rational. Furthermore, even as rival blockchains like Solana and Polygon have grown their ecosystems and communities, they still have a long way to go before they can rival ETH, particularly given the flourishing landscape of L2s that only seems set to keep growing.
Ran Hammer, VP of Business Development at Orbs, summed it up well in our recent discussion, saying, “Unlike BTC, ETH is the core infrastructure powering the blockchain ecosystem. Be it DeFi, NFTs, L2s, or real-world assets — whatever is trending, ETH is both the settlement and infrastructure layer for it. ETF notwithstanding, I believe we will see ETH outperforming or even flipping BTC in the next bull cycle.”
Only time will tell. We have been educated in the school of volatility, and if there’s anything we learned thus far, it’s that crypto’s superpower is one of surprise. The current bull run is acting as if all the red capes in the world are waved, with the dynamic duo of BTC and ETH pulling the entire altcoin market ahead. Strap in, because it’s going to be a wild ride — it always is.
