09 August 2024

Exciting! The despair of Bitcoin dropping below $50,000 on US recession fears earlier this week turned magically into euphoria yesterday. Bitcoin possibly registered its second biggest daily candle ever to trade above $61,000 – a key zone coinciding with its 200-day moving average. Bitcoin often plays with our emotions and it seems to be saying…

These are fun times. Today, in our Hot Take, we take a look at its strong #2 – Ethereum. Which has been dull of late. Let's get into it.

Top-3 stories of the week:

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The newsletter is put together by Giottus Crypto Platform. You can read all the previous issues of Cryptogram here.

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WEEKLY MACROS

• Total crypto market cap - $2.14 trillion - DOWN  6.1%

• Bitcoin price - $61,118 - DOWN 4.8%

• The dollar index (DXY) - 103.12 - DOWN 1.1%

• Bitcoin Dominance - 57.42% -  UP 1.5%

• Crypto Fear and Greed Index - 48 - Market is in Neutral State

THE HOT TAKE

Ethereum needs an inspired move soon

Ethereum (ETH), the Bitcoin challenger, is supposed to be the torch bearer for the altcoin market. When ETH moves, it is often referred to as a ‘tsunami’ – accelerating at great pace. However, Ethereum has underperformed since its Merge in Sep. 2022. In fact, it has lost 50% value against BTC in this period and has been on a macro downtrend.

In the last month or so, a similar narrative has played out. ETH/BTC pair has lost ~12% value this month in spite of yesterday’s surge.

This has coincided with the remarkable surge in Solana, which is touted as Ethereum’s challenger. Yesterday, SOL/ETH posted a new all-time high.

So what’s causing all this? When will Ethereum revive its old glory days?

Let's take a closer look at what's driving Ethereum's recent price volatility and explore the factors contributing to its downturn.

ETH ETF Outflows

Even before the market crashed this week, Ethereum has been registering declines. From July 23 to Aug 4, ETH dipped by 20% and first major factor driving the price down is Grayscale’s ETF outflows.

Since launch, the fund has witness a massive $2.2 billion in outflows, that has significantly dampened the overall performance of the other funds in the market.

Jump Trading Closing Down its Crypto Arm

Recently, the broader market experienced a significant downturn. The unwinding of the Japanese Yen carry trade, coupled with a massive $600 million Ethereum sell-off by Jump Trading, fueled a wave of fear and pessimism in the market, further dragging down Ethereum's price.

Why is Jump Trading selling?

• In June, the US government started investigating Jump Crypto, a big player in the crypto world, to look into how they've been trading and investing in crypto. Some speculate that Jump Trading is selling off assets, including Ethereum, as part of a larger liquidation process. This comes amidst rumours of the firm winding down its crypto operations following their former CEO's resignation and an ongoing investigation by the US

• Others believe that Jump Trading may have anticipated the market downturn and sold Ethereum to convert their holdings into more stable assets, like stablecoins, to weather the storm

Large Holders are Selling

This Monday, an influential whale, along with asset management firm Metalpha, offloaded a significant chunk of their Ethereum holdings. Data analysis platform Lookonchain revealed that these entities transferred nearly $73 million worth of Ethereum (29,557 ETH) to a Binance address in just three hours, suggesting a potential sell-off.

US Govt Moves Seized Funds

The US government transferred 300 ETH ($746K) from a wallet identified as "Noman Saleem Seized Funds" to an undisclosed address. Arkham Intelligence, a blockchain analytics platform, reported the transaction. These funds were initially seized in May under a court order. The details surrounding the case and the reason for the recent transfer remain unclear.

On-chain Activity Slumps

Ethereum is seeing a drop in user activity. Data from The Block reveals that the number of new Ethereum addresses created daily has been declining over the past month, plummeting from 93,840 on July 27 to a yearly low of 82,540 on Aug 3.

Additionally, the average daily count of active Ethereum addresses has shrunk by 13%, from 486,740 in July to 421,259 on Aug 2. This indicates a potential decrease in user engagement on the Ethereum network.

While these headwinds have certainly made it harder for Ethereum to recover in the short term, it's important to consider the bigger picture. Let's analyse recent developments and what they might mean for Ethereum's future.

Ethereum’s developer activity is strong along with a policy shift

From a development perspective, Ethereum has been busy. The successful implementation of the Dencun upgrade in March demonstrated the platform's technical strength. May brought an unexpected win with the approval of Spot ETFs in the US, a development that promised to boost the entire crypto market.

Additionally, landmark shifts in crypto policy, including the passage of FIT21, the overturning of SAB 121, and positive signals from the Trump administration, created a favorable regulatory landscape. To top it off, the SEC concluded its investigation into Ethereum 2.0 in June, removing a cloud of uncertainty that had been hanging over the project.

ETH’s supply is becoming deflationary

Ethereum’s supply has also remained range-bound since its Merge arresting an inflationary trend before it.

‘Options’ may be the next big thing for Ethereum

Options typically offer both an alternative mechanism for investors to gain exposure to ETH, and a tool enabling investors to hedge existing positions.

BlackRock is doubling down on its commitment to the Ethereum ETF space, with the firm teaming up with Nasdaq to file with the US SEC to launch options on the iShares Ethereum Trust.

Here's why the potential approval of ETH ETF options is a big deal

• Easier Access: Bitcoin and ETH ETFs have already made it simpler for investors to get exposure to crypto without directly buying it. ETH ETF options would take this a step further.

• Risk Management: These options would give investors important tools to manage their risk, potentially attracting even more participants.

• Regulatory Milestone: Approval would be a major win for the crypto industry, signalling growing acceptance from regulators.

Key Takeaway

Never bet against Ethereum in the crypto world. A lot of analysts are playing the converting BTC to ETH trade at current levels to benefit in future. A 0.06-0.07 level may mean a quick 50% gain without much sweat. By end of this year, we believe that ETH will be best positioned to take advantage of a bullish market.

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If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.