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In today’s newsletter:
🔎When will ETH pump? And why it’s been underperforming
📊On-chain alpha
😂Crypto meme of the week
🗞️The latest DeFi news
🔎When will ETH pump?
The past few months have been difficult for ETH holders.
Despite all the initial enthusiasm around Ethereum at the end of the bear market, ETH has significantly underperformed BTC even though the L2 activity exploded.
What’s the reason for this and what’s next?
Before starting, I want to clarify something - The goal of this issue isn’t to bash Ethereum, as I believe it's the network with the best DeFi ecosystem, but it has some issues that need to be addressed in my opinion for it to thrive in the long run
I’ll also talk about the bull case for Ethereum later on.
I believe that there are several headwinds that Ethereum is facing:
Capital fragmentation
If you’re bullish on Bitcoin, you buy BTC.
If you’re bullish on Solana, you buy SOL.
For ETH, the situation is a bit different. There are now over 100 Ethereum L2s, with most of them either having a token or planning to launch one.
Tokens like ARB or OP are perceived as ETH beta tokens. And because of this, a lot of Ethereum bulls choose to buy tokens like those instead of ETH.
This makes it harder for ETH to pump as it reduces the amount of capital invested directly in it.
Bad cross-L2 user experience
Ethereum L2s are now extremely affordable.
That’s a great thing. However, while this isn’t an issue for me, the bridging process between L2s is a nightmare for the average retail investor.
This is why monolithic chains like Solana have grown so much in popularity.
Ethereum L1 is still expensive, while L2s face major fragmentation issues that are leading to a bad UX.
The good part though is that many projects such as the OP Superchain alliance and Polygon are working on solving Ethereum fragmentation and unifying the L2 ecosystem.
But it’s not known when exactly their solutions will fully go live.
Ethereum competitors are advancing faster
Projects like Solana, Avalanche, or Sui are generally shipping major network upgrades at a much faster pace than Ethereum.
While Ethereum has made some great progress over the past few years, it still faces major issues like a bad cross-chain UX when using L2s.
Without solving them, it will be hard to onboard the first 1 billion people on-chain.
The counter-argument to this seems to be that as Ethereum is securing dozens of billions of dollars, the Ethereum Foundation has to spend a lot of time to ensure that every upgrade is fully secure before shipping it.
Reasons to stay optimistic
Alright, now let’s also talk a bit about the bull case for ETH.
To this day, Ethereum is still the network that:
has the most TVL (by far)
has the highest developer activity (by far)
Ethereum L1 is considered to be more secure than any other alt-L1 (a good reputation is needed for onboarding new users)
is leading in institutional adoption (BlackRock launched its on-chain tokenized fund on Ethereum L1 first)
Ethereum has a few problems, but it’s certainly far from dead.
The decrease in the ETH balance of centralized exchanges over the past year is also suggesting that whales are still accumulating ETH.
But perhaps the most interesting observation is the following one:
If you study what happened in the past 2 bull markets, BTC has always significantly outperformed ETH in the first phase of a new bull cycle.
So this is not the first time when ETH underperforms BTC.
People were saying that “ETH is dead” in 2021 as well and they were proven wrong.
If history repeats itself one more time, ETH will pump again in the late stages of this bull cycle.
The real question is: “How much will it actually pump?”
But this remains to be seen.
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On-chain Alpha🔎
The number of new followers to crypto X accounts is surging
This indicates that retail is starting to come back.
But the chart also shows that we still have a long way to go until the retail interest in crypto reaches the levels that it hit in 2021, which is a good thing.
When everyone will be bullish on crypto, it will be time to sell.
Crypto Meme😂
The latest developments in DeFi
Pennsylvania introduced a bill to buy Bitcoin as a reserve asset
Chainlink’s technology started being used by Brazil’s central bank to build a trade finance solution
Sonic (prev. Fantom) announced that Sonic L1 will go live in December
dYdX released dYdX Unlimited, allowing anyone to launch new trading pairs
Mantle released Mantle DeFi Fest, a multi-week DeFi campaign, and announced that FBTC, its tokenized BTC solution, reached $1b in TVL
Curve Finance launched scrvUSD, Curve’s yield-bearing stablecoin
INFINIT released INFINIT Launcher, which allows launching tokens with an AI agent in minutes
Monad, a EVM Layer 1 that supports up to 10,000 TPS, began rolling out its testnet
Crypto ownership became legal in China
18 U.S. states sued Gary Gensler and the SEC over its treatment of the crypto industry
Injective launched iAgent, an SDK that enables anyone to create their own on-chain AI agent
MakerDAO (aka Sky) launched its USDS stablecoin on Solana
Pancakeswap released PancakeSwap Swap Bot on Telegram
That’s all for this week!
Until next time,
The DeFi Investor
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