This was supposed to be a thread but I don't want to turn into Adam, so here we go.
ETH/BTC chart is bearish on the daily, weekly, monthly and yearly time frames.
Next main support is 0.036 (at 28% of the current price) ; lower 0.023 (at 54%).
Our famous ratio is already down 40% compared to its peak in september 2022.
Why?
In crypto, we very often live by expectations and die by the product.
Since the launch of the beacon chain in december 2020, eth is expected to be a highly decentralized network with an affordable barrier to entry to secure the network, and therefore low energy consumption.
Since shapella, expectations have been met but with a downside, lido's dominance that network participants perceive as problematic, because Lido uses whitelisted node operators and therefore only around thirthy node operators control $20.9b, i.e, just under 30% of the total staked.
On the to the next ones. The next expectations were to scale eth, that is, to offer low transaction fees and high speed. L2s were created for this but have not yet succeeded in delivering. The most striking evidence is that arb & op are still at stage 0 or 1 after 2 years in prod, and you can still pay $0.50-$1 for an swap when mainnet is congested, while people basically expected more polygon-style fees.
Zk rollups that we thought were early for the party are finally late.
I know it's an ongoing process, but things are moving too slowly according to market opinion. Furthermore, a new dark side appears, the centralization of sequencers. When l2s were launched, the majority of the market was uneducated about sequencers, so very few were aware of the fact that l2 teams would be managing their sequencers themselves for several years. So when the market realized, its conclusion was that l2s scale but not as expected, and for now they are shooting in the foot of eth’s decentralization and therefore of the first expectation achieved with pos. This is not really true as long as l2 users can force transactions inclusion on mainnet. But it’s not feasible on op eg. The market estimates that eth has not yet met its expectations.
This wouldn't be bad if eth was the market leader but it's not. On the other hand, BTC has finally met expectations of institutional adoption. If you invested in btc 5 years ago or more, the spot etf is the inflection point you've been waiting for. This obviously strongly reinforces market conviction in btc investing and creates a narrative that will likely last for years, punctuated by etf flows and the entry of new players into the market.
Another point caught my eye. When you explain to someone that eth is potentially a better investment than btc, you are telling them that this is where things happen, where applications grow, where you can earn yield, also how eth is deflationnary through fees burn. Basically you shill smart contracts.
Eth scaling is late so btc now finds itself at a stage no longer so far behind in market perception. Expectations are that defi on btc could be a reality following the path set by eth.
We finally had concrete proof of this with stacks (a l2 on btc with $300m tvl and $1.7 transaction fees) and the liquidity pools of a defi suite named Alex ie. automated liquidity exchange ($110m tvl). You can swap, farm and even trade brc20 tokens with order books, as well as bridge from evm chains even though it involves using a multisig bridge, therefore low security. A canonical bridge will be launch in 2024 by stacks, also the first lending product by alex that will work in a similar way to crvusd's llama. These are serious catalysts that will drive more l2 adoption. I really don't think anyone thinks all of this will really work because just a year ago it looked like a sweet fantasy of btc maxis.
When the mass will realize that they can be early again and bet on the historical chain, that's another bullet fired at eth. It was the discovery of Alex, a defi app which is really functional on a btc l2 that really made me realize that I was missing something in the btc narrative.
So rich people and instits who aren’t yet exposed to crypto will compare btc and eth, see eth price underperforming btc, their sharpe ratio and eth’s struggles to match current expectations vs btc which is striving, succeeding and even generating new expectations with l2s, defi and ordinals that can solve very long-term problems (like how to benefit miners when block rewards won't be enough).
So btc dominates the present narrative, the expectations and above all liquidity flows. Things accelerate really quickly, in 6 months btc went from ordinals to defi on l2 to a spot etf. Eth cannot keep up with this pace because expectations are way more difficult to meet so it’s logically less bid by investors which is reflected in the eth/btc chart.
This tendancy should amplify post etf launch if it’s not a sell the news event. Because people will allocate more to btc, not less. Will some eth whales become btc whales so as not to miss the opportunity of a lifetime?
It’s hard to see eth/btc not going down in these conditions.
I think the bearish trend that has been going on for 2 years should continue for the next 6-9 months at least to reach main support. But I can see a reversal happening after summer 2024 when we finally have at least 2 layer 2 at stage 2 or 3, offering very low fees thanks to the eip 4844 and to new DA solutions (eigenlayer and celestia, el cheaper) & decentralized sequencers. This would mean that restaking a is a proven source of pure yield and that eth paradigm could change as the restaking yield (that of the module with the most restakers) will outperform any risk free rate. Or why not a zk rollup that meets expectations.
Also the full integration of account abstractions will help to increase user experience (gasless transactions).
Incorporating native staking yields on l2 could also be a good thing, but you need to think differently about its implementation to fight against monopolies and avoid losing neutrality.
Then when scaling is sorted, eth can focus on the next expectations, namely institutional adoption through a spot etf.
As with kanye's albums, this piece will be updated if I think of new impactful elements.
Writing this was also fun because back in August I was doing an article about how the eth chart has been bullish over the years. This is still the case but crypto evolves quickly and I could be very wrong but 2024 will definitely be the year of Bitcoin to the detriment of Ethereum price.
Of course, I could be totally wrong about everything you just read and eth/btc could bottom when the etfs launch, but let’s see.
Thanks for reading.