We like ETH — it is one of the best — but the price action is not optimal. Please note that we are NOT bearish on ETH.
But what do you mean by a not-optimal price action?
Check the ETH-BTC chart. ETH has hit the lowest level since April 2021.
Ethereum has been experiencing a prolonged bearish phase, which could be the final stage of a bear market for ETH.
It also means BTC could take a back seat now, leading to an altcoin rally.
Let’s check Dominance for more insights.
The 1-Week Bitcoin Dominance confirms the analysis.
In 2018, the Dominance rise was quick and violent. The context was the ICO bubble of 2017 (Good old times!).
Dominance increased from Jan 2018 to September 2018.
It fell from September 2018 to September 2020. This was the peak bear market.
Dominance had solid support at 57.1%. This can be vaguely interpreted as 57% of crypto investors (in terms of volume) being more interested in BTC than altcoins.
During the 2020-21 bull run, Bitcoin Dominance fell sharply to 40%, leading to the biggest alt rally.
However, things are different in 2023-24.
Bitcoin dominance is rising slowly and consistently
This means we have more altcoins, and there is huge fragmentation.
As experienced investors, we want to look at the fragmentation problem.
Fragmentation Problem
What are fragmented?
Liquidity
Capital
Developers
Users
FOMO
We need to check the above five fragmentation problems to understand the ETH problem.
Liquidity
Earlier, the war was between Bitcoin Maximalists and Ethereum investors.
This splits the liquidity into 3.
Bitcoin (50-75%)
Ethereum (30-40%)
Smaller Alts (20-30%)
However, as the industry matured in 2020-21, we saw the liquidity shift from Ethereum to Ethereum Killers.
The ETH killers were L1s offering a Proof of Stake model with faster and cheaper transactions. This is how DOT, ATOM, SOL, FTM, and NEAR came into the race. All had excellent liquidity, which led to a liquidity split to 4.
ETH Killers or Alternate L1s
Later, the NFT market boomed, adding another liquidity split.
However, after Luna collapsed, investors took a cautionary approach and moved funds from Ethereum killers to Ethereum and Bitcoin.
In 2022, the Eth merge happened. ETH became POS, and L2s started to capture the extra liquidity from ETH killers. Many L2s launched, further causing fragmentation.
Now, there is a restaking frenzy. N number of chains are being launched with minimal to no liquidity. In fact, Ethereum’s innovations have paved the way for ETH-BTC to underperform.
Check the above table - It's just the top 7 L2s by marketcap. Look at the funding received. Ethereum funds, users, and attention are split.
Capital
There is a rise in investments in alternative L1s. This proves our theory.
Developers
Developers follow the Liquidity and Capital. Developers build products, and users follow. This is the final step of FOMO generation.
FOMO
We are still lacking the FOMO aspect. It can come with a major economic event.
In 2017, it was the ICOs. In 2020, it was the covid. In 2024, it will be the Fed pivot and rate cuts along with the US elections.
However, this FOMO might be directed toward newer money-making opportunities.
This is why NFTs and Metaverse pumped in 2021.
This is why AI pumped in 2023.
We are actively looking for hot narratives in 2024 end. There is every possibility that the final bullish wave starts in October. Along with the bullish wave, we could see a fall in Bitcoin dominance and a resurgence of ETH.
We are waiting for a double-digit gain for the ETH-BTC pair. This has happened before, indicating altcoin rallies, and it will happen again.
What is Next?
Probably, the future lies in Ethereum. It is too big to fail.
Probably, this October will bring momentum to ETH, and it will escape the undervalued state.
Anyhow, our capital need not wait for Probabilities and merely escape underperformance. We need to look for alternatives that can 5x outperform ETH, 10x outperform BTC, and 20x outperform inflation.
