ETH/BTC Long Idea | The Best Trade-Off in Crypto
First things first,
Fundamentals and supply and demand are the two major driving forces of price in any specific market.
When talking about fundamentals, Ethereum is far ahead of the heard when it comes to:
-Web3 & Decentralization: Ethereum is arguably more decentralized than Bitcoin (why you may ask) because there are more gas fees in $ terms everyday. That makes up 3x more than the BTC fees generated therefore it is essentialy harder to 51% ETH than BTC. Digital authoritarianism vs big tech oligopoly is the internet as we know (flawed), web 3 driven by ETH gives people property rights, the ability to own a piece of the internet without relying on third parties, aligning network participants to work together toward a common goal - the growth of the network. Web3 empowers a collective owned future over a corporate or government owned future, with resilient, equitable and participatory ecosystems.
-Supply and demand: specially now that the Merge is around the corner, DrakefJustin (Ethereum researcher) recently said that the Beacon chain will merge with mainnet in August 2022. With that being said, other supply and demand factors sure as asset inflation come into strong play in the monetary structure of the asset. We will break down the inflationary/deflationary structure of the S&D flow in the upcoming points, but that just further increases the overwhelming supply for Ethereum in the upcoming months.
-Inflationary by nature/programmable: Ethereum will turn deflationary after the merge, and with that everything changes. The infrastructure of supply and demand as we know it will be changed, according to Bankeless, the rate of which ETH will burn from circullating supply is around -0.4-1% per annum. If everything goes right, to prevent price from going up, enough sellers on the network will have to step in to sustain the supply
- EIP1559: Ethereum last year has upgraded the network through a consensus of 70% tx fees being burned, this way any person that is constantly using the network will further increase the pace in which the Ethereum deflation happens. The transaction fees paid by users in average is 15m daily, while the 2nd chain is BNB with 10x less (1.3m). While this is constantly being dumped on the market by miners to pay for expenses, the opposite will happen when it turns to PoS.
- Environmentally/Socially accepted: although crypto has a bad "fame" for it's high energy consumption, this will not be around anymore when ETH 2.0 comes into play later probably in Q3. ESG and other institutions that have green checklist agendas will flip "bullish" on the asset as soon as the merge happens, as an effect more inflow of capital and acceptance by the overall community.
- Triple Halving concept: for comparison, an analyst called Nikhil Shamapant has deep dived into the technicals on how Ethereum's merge will be compared to Bitcoin's halving, a 3x in decrease of inflation and furthermore the flows based on the timeline of the event.
- Usage: Ethereum market cap and the broad crypto space has evolved a lot because of factors of usability, it's not surprising that ETH has sucked most of the volume of DeFi and NFT coming from builders in the space. It's unprecedented that new protocols, Dapps and networks are built on top of Ethereum, and it is very likely to continue to be the most trustless/reliable network with an outrageous community of like-minded investors. Developer activity has risen by 70% over the previous months and social media over 80%. While other smart contract platforms rival Ethereum in users and usage,the demand for block space is unmatched.
- Adoption: Ethereum is the 3rd lasgest L1 active addresses blockchain, with 5.5M users active everyday making over 1M transactions. When compared to the adoption curve of the internet, crypto is just getting started on it's multi-year run towards the 1b users, which will likely come in 2030 if the blockchain space continues to rapidly evolve like it is right now, focusing on building instead of gains. Ethereum continues to attract the most developers, but several emerging ecosystems are on a similar trajectory, according to a16z, Ethereum has around 4000 monthly active developers since launch, while the second competitor is Solana with 1000.
- L2 Rollups secure ETH: today, L2 rollups contribute to 1.5% of all fees paid on Ethereum, although Arbitrum, dYdX and Optimism are Layer 2, they still fall under the hood of the Ethereum blockchain and end up making for a bit chunk of the transaction fees on the network, further decentralizing and securing it.
- Bearish market sentiment: this is a lagging indicator but represents the important fact that almost everyone is feeling bearish right now. I can't stress enough how important to buy the blood sell the party is but time will teach this lesson to newer investors. The Fear and Greed index of crypto is sitting at levels not seen since the March 2020 crash, a legendary bottom opportunity. These times are also called the "climax" in terms of the overall scope of the psychology of the market.
- Bearish backtrack: There is always the other side of the coin, it's important to note that these are all bullish points and there is a briefing about bears arguments: the market is full of debt, overvaluation, macro economics bearish, recession in bond/stock market metrics, ETH usability not even close to its full potential, etc. There will always be someone on the other side of the trade, and that's what makes a good risk/reward, how many people do you think are offering/ selling ETH sub $2000?
The technicals:
ETH/BTC trade-off BUY / long idea:
Taking into account all of the points mentioned above, let's now dive in to why I think that Ethereum could beat Bitcoin again, striving higher for its ATH.
- Opportunity cost or Risk to Reward: ETH/BTC Ratio is far from it's ATH in June 2017, sitting at -55% drawdown or 150% away from price. The risk taking into this investment strategy is another 56% downleg with the price of Ethereum being as low compared to Bitcoin as it was last year. The upside is consistently conservative as we're just taking it for the sake of perspective, as our real taraget would be well above the previous ATH, but that alone would net 2.3 Reward/Risk ratio.
- Uptrend: weekly chart is slowly but surely getting there, with a slow in momentum due to the "crypto winter" dating from November 2021 up to today. The chart is far from bearish, the nearest shorter timeframe low is at 0.064 and the higher timeframe low is at 0.055, still -17% away from where price is trading at currently. For an early-exit signal, we would want to see these two lows getting wiped out with clean weekly candle body closures below.
- EMA support: the 50EMA on the Weekly timeframe is sitting right below this weeks low, which is considerably an important support of a time frame investor analyst.
- Volume: everyone knows that phrase "volume speaks", and it's true here as well, we recently saw a spike in volume and a possible breakout in terms of higher volume coming into the ETH/BTC Binance metrics.
- Bearish indcators to keep in mind: Bitcoin breaks last year lows, in risk of losing the critical 30k support line on the monthly close.
All in all, Web3 infrastructure will continue to improve, with the continued improvement and growth of nonEthereum L1s and Ethereum L2s. The Ethereum merge will hopefully happen this year. This will improve performance and also remove the environmental objection to using Ethereum. On top of that, the overall market is in climax and overselling pressure, there can be a significant boost in price just thinking from a price apreciation based in the market cycle.
What now?
After you have all this information, it's imporant to DYOR, that means, go after it and make sure that these bullish confluences are actually viable to a price swing in the upcoming months. That's it, I hope you enjoyed.
Keep your risk managed,
Cryptofunded
Fundamentals and supply and demand are the two major driving forces of price in any specific market.
When talking about fundamentals, Ethereum is far ahead of the heard when it comes to:
-Web3 & Decentralization: Ethereum is arguably more decentralized than Bitcoin (why you may ask) because there are more gas fees in $ terms everyday. That makes up 3x more than the BTC fees generated therefore it is essentialy harder to 51% ETH than BTC. Digital authoritarianism vs big tech oligopoly is the internet as we know (flawed), web 3 driven by ETH gives people property rights, the ability to own a piece of the internet without relying on third parties, aligning network participants to work together toward a common goal - the growth of the network. Web3 empowers a collective owned future over a corporate or government owned future, with resilient, equitable and participatory ecosystems.
-Supply and demand: specially now that the Merge is around the corner, DrakefJustin (Ethereum researcher) recently said that the Beacon chain will merge with mainnet in August 2022. With that being said, other supply and demand factors sure as asset inflation come into strong play in the monetary structure of the asset. We will break down the inflationary/deflationary structure of the S&D flow in the upcoming points, but that just further increases the overwhelming supply for Ethereum in the upcoming months.
-Inflationary by nature/programmable: Ethereum will turn deflationary after the merge, and with that everything changes. The infrastructure of supply and demand as we know it will be changed, according to Bankeless, the rate of which ETH will burn from circullating supply is around -0.4-1% per annum. If everything goes right, to prevent price from going up, enough sellers on the network will have to step in to sustain the supply
- EIP1559: Ethereum last year has upgraded the network through a consensus of 70% tx fees being burned, this way any person that is constantly using the network will further increase the pace in which the Ethereum deflation happens. The transaction fees paid by users in average is 15m daily, while the 2nd chain is BNB with 10x less (1.3m). While this is constantly being dumped on the market by miners to pay for expenses, the opposite will happen when it turns to PoS.
- Environmentally/Socially accepted: although crypto has a bad "fame" for it's high energy consumption, this will not be around anymore when ETH 2.0 comes into play later probably in Q3. ESG and other institutions that have green checklist agendas will flip "bullish" on the asset as soon as the merge happens, as an effect more inflow of capital and acceptance by the overall community.
- Triple Halving concept: for comparison, an analyst called Nikhil Shamapant has deep dived into the technicals on how Ethereum's merge will be compared to Bitcoin's halving, a 3x in decrease of inflation and furthermore the flows based on the timeline of the event.
- Usage: Ethereum market cap and the broad crypto space has evolved a lot because of factors of usability, it's not surprising that ETH has sucked most of the volume of DeFi and NFT coming from builders in the space. It's unprecedented that new protocols, Dapps and networks are built on top of Ethereum, and it is very likely to continue to be the most trustless/reliable network with an outrageous community of like-minded investors. Developer activity has risen by 70% over the previous months and social media over 80%. While other smart contract platforms rival Ethereum in users and usage,the demand for block space is unmatched.
- Adoption: Ethereum is the 3rd lasgest L1 active addresses blockchain, with 5.5M users active everyday making over 1M transactions. When compared to the adoption curve of the internet, crypto is just getting started on it's multi-year run towards the 1b users, which will likely come in 2030 if the blockchain space continues to rapidly evolve like it is right now, focusing on building instead of gains. Ethereum continues to attract the most developers, but several emerging ecosystems are on a similar trajectory, according to a16z, Ethereum has around 4000 monthly active developers since launch, while the second competitor is Solana with 1000.
- L2 Rollups secure ETH: today, L2 rollups contribute to 1.5% of all fees paid on Ethereum, although Arbitrum, dYdX and Optimism are Layer 2, they still fall under the hood of the Ethereum blockchain and end up making for a bit chunk of the transaction fees on the network, further decentralizing and securing it.
- Bearish market sentiment: this is a lagging indicator but represents the important fact that almost everyone is feeling bearish right now. I can't stress enough how important to buy the blood sell the party is but time will teach this lesson to newer investors. The Fear and Greed index of crypto is sitting at levels not seen since the March 2020 crash, a legendary bottom opportunity. These times are also called the "climax" in terms of the overall scope of the psychology of the market.
- Bearish backtrack: There is always the other side of the coin, it's important to note that these are all bullish points and there is a briefing about bears arguments: the market is full of debt, overvaluation, macro economics bearish, recession in bond/stock market metrics, ETH usability not even close to its full potential, etc. There will always be someone on the other side of the trade, and that's what makes a good risk/reward, how many people do you think are offering/ selling ETH sub $2000?
The technicals:
ETH/BTC trade-off BUY / long idea:
Taking into account all of the points mentioned above, let's now dive in to why I think that Ethereum could beat Bitcoin again, striving higher for its ATH.
- Opportunity cost or Risk to Reward: ETH/BTC Ratio is far from it's ATH in June 2017, sitting at -55% drawdown or 150% away from price. The risk taking into this investment strategy is another 56% downleg with the price of Ethereum being as low compared to Bitcoin as it was last year. The upside is consistently conservative as we're just taking it for the sake of perspective, as our real taraget would be well above the previous ATH, but that alone would net 2.3 Reward/Risk ratio.
- Uptrend: weekly chart is slowly but surely getting there, with a slow in momentum due to the "crypto winter" dating from November 2021 up to today. The chart is far from bearish, the nearest shorter timeframe low is at 0.064 and the higher timeframe low is at 0.055, still -17% away from where price is trading at currently. For an early-exit signal, we would want to see these two lows getting wiped out with clean weekly candle body closures below.
- EMA support: the 50EMA on the Weekly timeframe is sitting right below this weeks low, which is considerably an important support of a time frame investor analyst.
- Volume: everyone knows that phrase "volume speaks", and it's true here as well, we recently saw a spike in volume and a possible breakout in terms of higher volume coming into the ETH/BTC Binance metrics.
- Bearish indcators to keep in mind: Bitcoin breaks last year lows, in risk of losing the critical 30k support line on the monthly close.
All in all, Web3 infrastructure will continue to improve, with the continued improvement and growth of nonEthereum L1s and Ethereum L2s. The Ethereum merge will hopefully happen this year. This will improve performance and also remove the environmental objection to using Ethereum. On top of that, the overall market is in climax and overselling pressure, there can be a significant boost in price just thinking from a price apreciation based in the market cycle.
What now?
After you have all this information, it's imporant to DYOR, that means, go after it and make sure that these bullish confluences are actually viable to a price swing in the upcoming months. That's it, I hope you enjoyed.
Keep your risk managed,
Cryptofunded
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