The Thesis
Bitcoin fundamentals are at an all-time high as we head into an ETF approval, the halving event and have had explosive ordinals/BRC-20 ecosystem growth. Significant money flows are front-running these factors as BTC establishes itself as a valid, regulated asset that could be seen as an essential constituent of an investor’s portfolio.
ETH has had the wind taken out of its sails due to these strong BTC fundamentals but is also being challenged by the lack of attention of existing speculators within the space, opting to rotate funds between Alt layer-1 ecosystems (Celestia $TIA, Solana $SOL, Avalance $AVAX) and other high momentum growth narratives, such as Bittensor $TAO in the AI sector.
ETH is also the only other asset under consideration for a spot ETF in the future. Despite the recent short-term activity within the market, it is still the asset with the highest institutional interest outside of Bitcoin. We expect flows to start favouring ETH post-BTC ETF due to:
ETH ETF speculation starts to ramp up post-BTC ETF approval, improving the bid and total volume traded for ETH as speculation respectively declines for BTC as a ‘sell the news’ event short term, creating that potential window of opportunity for outperformance.
Government BTC sales that have since been paused will likely resume post-ETF, increasing selling pressure over a period of 2024.
Mt. Gox BTC will be released, leading to further BTC selling pressure or may be converted into ETH as an additional source of positive flows.
BTC Miner's sell pressure continues to stay consistent, as it should, whilst ETH continues to burn supply and remains deflationary, which ultimately, over time, will have a meaningful impact.
The ‘hot ball of money’ will rotate from heated ecosystems such as Solana & Avalance back into Ethereum, at least short-term, further magnifying speculation and participation within the ecosystem that causes ETH to be further deflationary as a positive feedback loop for speculators and stakers, ultimately bringing attention to Ethereum again.
If we see the above play out, we also anticipate Ethereum ecosystem projects, which have largely been stagnant within their range lows for over a year, to mark up significantly in line with the recent growth across the wider crypto space due to objectively still being the market leaders and largest innovators in the space that many forks and competition are based on. It’s easy to assume they would be the first to feel trickle-down effects from a strong ETH institutional bid.
The Technicals
A strong confluence of the fundamentals and the technicals below supports a strengthening of Ethereum’s market position in early 2024, post-BTC ETF approval.
ETHBTC
24 months since new highs and 15 months of clean downtrend. The ratio is currently at a 50% retracement from the lows to the highs and is on major support from June 2022.
BTC.D
Bitcoin dominance hit its range midpoint and created a swing failure pattern (SFP) on the monthly timeframe after a 12-month rally.
Ethereum Large Cap DeFi
Represented as (AAVEUSDT + UNIUSDT + SNXUSDT + CRVUSDT) /4
553-day accumulation range, 31-month total bear market and a complete lack of interest from speculators. We believe a rally on ETHBTC and institutional interest from the ETF would create a magnified effect on its oldest and most battle-hardened protocols.
Ethereum Layer 2s
ARBUSDT + OPUSDT / 2
Both Arbitrum & Optimism tokens were launched in the bear market. We anticipate that if Ethereum does increase flows into its ecosystems, its core layer-2 proponents will benefit in addition to its native protocols.
ARBUSDT
OPUSDT
ARBUSDT + OPUSDT / 2
Liquid Staking Tokens
There are many liquid staking protocol tokens now, but Lido boasts the highest total value staked across its validators at around $19B. Historically, when there is a strong ETH narrative, fees increase, staking rewards increase, and a higher burn of the ETH supply - all of these factors are positive catalysts for staking providers such as Lido, which already has the largest market share and institutional interest.
LDOUSDT
Expressing the View
As with all trade ideas, they might be invalidated along the way and outright wrong (e.g. if the BTC ETF is rejected). However, the current confluence around the technical and fundamentals surrounding BTC and ETH is very interesting. We will try to express this view as a trade through a combination of spot positions and long/short trades in January, with a timeframe of 2-3 months.
Spot: UNI, AAVE, CRV, SNX, LDO, OP, ARB (equal weights).
Futures: Long ETH / Short BTC (equal size) on Aevo.
If you have any questions, feedback or views on the topic, contact us on Twitter (@TortugaOnchain). We would love to hear it. Also, if you found this content useful, please consider following us on our social media, subscribing and sharing it with others.
Tips, disclosures & more: tortugaonchain.com
Trading dashboard: apps.tortugaonchain.com
Twitter: @TortugaOnchain, @andrew_eth, @galleonlabs
Enquiries: gm@galleonlabs.io
Disclaimer
The content in this newsletter is not financial advice. This newsletter is strictly educational, not investment advice or a recommendation to buy or sell assets or make financial decisions. Do your own research; crypto markets are volatile.
