Year-end special Space review: Ethereum and altcoin market outlook

Compiled by Yuliya, PANews

Recently, PANews conducted an online interview on Twitter Space with the theme of " Year-end Special Space: Outlook for Ethereum and Altcoin Market ". This interview invited Chainfeed founder Pan Zhixiong, Nothing Reaearch partner Todd, Gate Group Chief Business Officer Kevin Lee, and independent research and NingNing to jointly look forward to the future potential of Ethereum and the Altcoin market.

Guest Introduction

Pan Zhixiong :

I am currently working on a technical newsletter, and I have been paying attention to Ethereum and the entire ecosystem. Recently, I have been focusing on two directions: one is to study the progress of programmable cryptography and privacy protocols; the other is to explore some of the capabilities of OpenAI, while paying attention to topics related to AI agents.

Todd:

I am currently doing two main things: one is running a research-driven fund Research; the other is running an Ethereum non-custodial mining pool called Ebunker, which currently accounts for more than 1% of the total Ethereum computing power. Our research on Ethereum has been ongoing, and Ethereum has performed relatively well in the past two days.

Kevin Lee :

I have been working in banking. I am currently preparing for the upcoming Consensus conference in Hong Kong and planning a large concert. This will be an important industry event in Hong Kong.

NingNing :

I am an independent researcher now. I used to be a veteran investor and have participated in the development and operation of exchanges and various vertical products. I am very happy to participate in today's discussion.

Ethereum Controversy

PANews : Why does Ethereum still face so many doubts despite being so active?

Pan Zhixiong:

Doubts about Ethereum actually exist every year, which is normal and should exist. The main reason is that it has not met the expected growth of Bitcoin or Solana. Solana (SOL) has indeed performed well this year, rising from around $10 at the beginning of the year to nearly $200, while Ethereum's increase is relatively small. People often come to a conclusion first and then look for reasons, such as the Ethereum Foundation is selling coins and the foundation is bloated.

When it comes to the issue of the foundation selling coins, we need to look at it more objectively. This is indeed an objective fact, but it can be interpreted in two ways: from a negative perspective, it may indicate a lack of confidence in the project, but from a positive perspective, it is to pay engineers' salaries and invest in future research. Compared with other projects, Ethereum is more transparent, and everyone can see every move of the foundation.

I think the problem in the community now is that many people rely too much on the opinions of KOLs and lack independent thinking . For example, if other public chains do this, the foundation selling coins may be interpreted as "the project party is raising funds for ecological development", but in the case of Ethereum, it becomes negative news. So I think it is important to have independent judgment, rather than blindly follow the opinions of others.

Todd:

I completely agree with Mr. Pan's point of view. From our experience in operating mining pools and communicating with various coin holders, Ethereum needs a strong "monetization" scenario in each bull market cycle.

Looking back at history, we can see this pattern:

• During the bull market in 2017, ICO was the trend. At that time, if you wanted to participate in any high-quality project, you had to use ETH, which created huge demand;
• In the bull market of 2021, it is DeFi mining (whether L1/L2), and ETH has once again become a necessity;
• Current state in 2024: Buying Memecoins on Pump.Fun creates demand for Solana

Although Ethereum has a staking mechanism, it is more biased towards large investors. For example, if a large investor invests tens of thousands of Ethereums, while a retail investor only has 0.1 Ethereum, then there is little point in participating. I have calculated that even at the current rate of return of about 6%/7%, it is not attractive enough for ordinary investors. This explains why Ethereum has performed below expectations in this round of market, and it has not found a new strong "monetization" scenario.

Kevin:

Ethereum's performance this year can be divided into two stages:

• The performance in the first half of the year was actually quite good, with trading volume remaining at a high level and market expectations being relatively optimistic.
• But in the second half of the year, the situation has changed significantly. Even though ETFs have been approved in the United States and Hong Kong, the application scenarios are still not active enough. Meme coins are popular in Solana, GameFi is in Telegram, the DeFi projects in 2021 are now less popular, and the NFT market is far less hot than before.

Ning:

The price performance of Ethereum this year has really surprised the market. Recently, there was a news report that a whale was long on the exchange rate of Bitcoin and Ethereum, and the transaction was forced to stop loss, resulting in a loss of tens of millions of dollars. Ethereum faced some problems in the Cancun upgrade. Although there were no technical problems, the economic model did not fully consider the impact on the ecosystem, especially the blob pricing curve of the DA layer was set too high, which affected Ethereum's ability to capture L2 value. (At the time, it was affected by market optimism)

The rise of Meme and AI agents has led to a large number of users flowing to Solana. Although Ethereum's TVL has reached more than 100 billion US dollars, far exceeding Solana's 10 billion US dollars, in fact, a large amount of Ethereum is dead money (various pledges/packages), and there is a problem of double counting. Now it has become difficult to issue coins or do projects on Ethereum and raise funds on DEX, causing many projects to turn to Solana or Base. This shows that Ethereum is facing the strongest challenge from Solana, just like it faced Polygon and Avalanche in the previous cycle.

L2 Development Status

PANews : In the field of Ethereum L2, the ZK narrative was once a popular topic, but after the launch of multiple large ZK projects and token airdrops, negative news has emerged. So, has Ethereum's ZK track failed? Has the L2 landscape been determined? Is it possible for ZK L2 to surpass OP L2 in 2025?

Pan Zhixiong:

From the perspective of the Ethereum Foundation, they have invested a lot in ZK research. Although they have not yet implemented ZK zero-knowledge proof technology, their roadmap is still very focused. In the short term, it is difficult for the entire community to see obvious differences:

• In terms of capacity expansion, OP can also meet the demand, while ZK has a greater burden to generate proofs.
• ZK is more suitable for privacy technology, but privacy technology is subject to policy restrictions recently.
• It is difficult for users to directly feel the privacy advantages of ZK

Ethereum is currently promoting ZK applications in two directions:

• Privacy and Scaling Exploration Group (such as the 0xPARC project ): Implement specific scenarios, such as personal tickets, email content reading, etc.
• Development Tools: Provide developers with open source tools to facilitate access to specific content while protecting user privacy

Todd:

I have a rather radical view. First of all, we must admit that the strongest applications in the industry are Binance and Coinbase. From the perspective of Layer2 ranking, Arbitrum ranks first, Base ranks second, and OP ranks third. Base ranks second largely due to Coinbase's support for listing.

OP convinced Coinbase that this decision gave it a huge advantage in the fight against ZK. Considering that most users participate in Layer2 for speculative purposes, projects on Base may have more opportunities to be listed on Coinbase in the future, which also increases users' willingness to participate.

Another key point is the convenience of deposits and withdrawals. In the past, ZK’s withdrawals were completed in one day, which was an advantage, while OP needed seven days. But now mainstream exchanges such as Binance support OP’s fast deposits and withdrawals, which can be completed in 20-30 minutes, which actually wiped out ZK’s timeliness advantage.

From the perspective of technology maturity, in the rating system launched by L2Beat (the higher the better, stage zero means that the sorter is still controlled by the security committee, stage one is managed by the whitelist sorter supplier, and stage two is completely decentralized.), only OP and Arbitrum have reached the stage one level, while most ZK projects are still in the stage zero stage. This is why mainstream exchanges tend to support OP technology.

Kevin:

The biggest problem at present is the lack of necessary application scenarios. Looking back at 2021, the hot NFT market led to high gas fees. At that time, Layer2 solutions, whether OP or ZK, began to appear. But in this cycle, we have not seen a similar explosion of applications.

In addition, many other L1 public chains have solved the expansion problem, and users do not have an urgent need to use L2. The reality is that when users find that other public chains can already meet their needs, why do they still use Ethereum specifically and use L2 solutions on Ethereum?

However, I still have confidence in Ethereum. If new applications emerge in the future, such as NFT or other applications, and Ethereum faces expansion problems again, these L2 solutions will be able to truly demonstrate their value.

NingNing:

OP Stack now also provides ZK rollup solutions, but the adoption rate is not high. Although ZK has technical advantages, it has not been transformed into market advantages. It is a difficult problem for the ZK camp, but it is not hopeless. The key lies in how to find a breakthrough.

Altcoin ETFs

PANews : How do you view the change in Ethereum's position as the leader of Altcoin? In addition, Litecoin, Solana, Ripple and other projects are also applying for ETFs. If Trump takes office, the ETFs of these currencies may be approved. Will they repeat the lackluster market performance of Ethereum ETF?

Pan Zhixiong:

Overall, Ethereum's leading position remains solid. This is mainly reflected in two aspects: first, in terms of market capitalization, Ethereum is still the second largest cryptocurrency after Bitcoin; second, in terms of application ecology, Ethereum has the richest and most representative DeFi and NFT application ecosystems. As for the ETF approval process of other projects, I think this is a gradual process that requires the market and regulators to adapt together. Different projects may face different challenges and opportunities.

Todd:

Regarding the topic of ETF, I would like to analyze it from several key dimensions:

• First, the launch of ETFs for small-cap cryptocurrencies faces real difficulties. Take Litecoin as an example. Its current market value is about $7.7 billion. Even if 10% of the coins flow into the ETF market (about $770 million), the annual income is only more than $1.4 million based on a 0.2% management fee. For large financial institutions such as BlackRock and Fidelity, this income scale may not even cover the basic expenses of maintaining the operating team, not to mention the expenses of high-paying positions such as legal affairs.
• The second is the issue of staking income. Current ETF products do not support staking, which is an obvious shortcoming for projects like Solana that provide about 7% risk-free staking income. When weighing the pros and cons, investors will find that choosing an ETF will not only fail to obtain staking income, but will also require paying management fees. This difference will inevitably affect the flow of funds.

Kevin:

As a practitioner who has worked in traditional banks for more than ten years, I think the current cryptocurrency ETF products are still very rudimentary. In the traditional financial market, ETFs usually do not track only a single asset, but will develop richer product forms such as index ETFs and sector ETFs. In the future, the cryptocurrency market will inevitably see more diversified ETF products, such as Layer 1 sector ETFs, DeFi sector ETFs, etc. In this evolutionary process, Ethereum, as the largest smart contract platform, will continue to play its core role.

NingNing:

I noticed an interesting phenomenon: there is a clear gap between market expectations and reality. Previously, the market generally believed that the approval of ETFs would bring a large amount of incremental funds, driving the entire Ethereum ecosystem and related Altcoin to rise. But the reality is that in the U.S. stock market, cryptocurrency ETFs may only be regarded as a type of small and medium-sized technology stocks.

Judging from the market performance since November, funds have not flowed along the expected path of " Bitcoin ETF → Ethereum ETF → Altcoin ETF ". Instead, projects such as XRP and Stellar (XLM), which have been deeply rooted in the US market for a long time, have performed more prominently. This gap between market perception and reality deserves deep thinking by investors.

Ethereum ETF Inflows Increase

PANews : After the Ethereum ETF was approved, its fund inflow performance has not been as good as the Bitcoin ETF. But recently, we have seen that the fund inflow of the Ethereum ETF is gradually increasing. I would like to ask you, what is the reason behind this? Is it possible that the fund inflow of the Ethereum ETF will exceed that of the Bitcoin ETF in the future?

Todd:

Let's look at this from the perspective of investor psychology. Recall that when many people first enter the cryptocurrency market, their first reaction is often "Bitcoin is too expensive, I want to buy something cheaper", and then they choose Ethereum or other currencies. This is a common psychology.

Based on this observation, I believe there are three key factors that will influence the future development of Ethereum ETFs:

• Price threshold effect: When the price of Bitcoin reaches a new high, such as $150,000 or $200,000, investors will naturally look for relatively low-priced alternatives. Since small-cap currencies are difficult to obtain ETF approval (because management fee income may not cover costs), Ethereum will become the most natural choice.
• Staking income issue: Currently, an obvious disadvantage of Ethereum ETF is that it cannot support staking. If investors buy Ethereum directly on the chain and perform native staking, they can obtain a risk-free return of about 3.26%. However, if they buy ETFs, they will miss this part of the income. This does affect the decision-making of some investors, but if ETFs can support staking in the future, their attractiveness will be greatly improved.
• Hybrid ETF opportunities: In the future, hybrid ETF products of Bitcoin and Ethereum are likely to appear in the market, such as 80% Bitcoin + 20% Ethereum. This "package" product will attract investors who want to diversify their investments and bring new capital inflows to Ethereum.

Although the inflow of funds to Ethereum ETFs may still be limited in the short term, based on these three reasons, I am optimistic about its long-term development, but I just need to give the market some time.

Kevin:

From the perspective of trading strategy, I see two possible capital flows:

• Long-Short Strategy : Some traders do try to long on Ethereum and short on Bitcoin. However, from October this year to now, this strategy has not been very effective due to Bitcoin outperforming Ethereum. The attractiveness of this strategy has been greatly reduced.
• Fund rotation effect : One feature of ETFs is that they provide a more convenient channel for fund conversion. For example, when investors sell Bitcoin ETFs, they get cash and can freely choose to invest in the stock market, Tesla or other assets. This convenience is a double-edged sword: the advantage is that it is easier to convert between different assets; the disadvantage is that funds may not necessarily stay in the cryptocurrency market.

So my judgment is that although the capital inflow of Ethereum ETF will continue to increase next year, it is unlikely to exceed that of Bitcoin ETF.

When will the new round of copycat season come?

PANews : The Ethereum ecosystem seems to still be focusing on infrastructure. Does it need to shift to the application level? In addition, many investors are paying attention to when the new round of altcoin season will come.

Pan Zhixiong:

This is an interesting question. Although Ethereum has been developed for more than ten years and Solana's performance is quite good, there is still a lot of room for improvement from an infrastructure perspective. Let me give you a few specific examples:

• Parallel processing has not yet been achieved on a large scale
• The construction of the privacy layer is still imperfect
• Front-end data storage issues for decentralized applications
• Reliability and continuous accessibility of data
• The gap between user experience and Web2

With the current infrastructure level, it is still difficult to achieve a truly decentralized Web2-level user experience. Only when the capabilities of each layer are improved can we get close to the experience level of Web2.

When it comes to the application level, the new generation of applications will inevitably develop with the improvement of infrastructure. For example, look at the evolution of Uniswap: from V1 to V4, each upgrade is adapting to the new infrastructure capabilities, taking into account new features such as performance optimization, multi-Layer2 deployment, cross-application calls, and automation.

I think the copycat season is definitely coming, and it’s usually accompanied by:

• Innovative gameplay mechanism
• New liquidity model
• New ways to monetize
• Wider user participation

Todd:

The key to this question lies in how to define "copycat". This definition has undergone significant evolution in the past few rounds of bull markets:

• 2013: Modifying Bitcoin code and changing the name is considered a copycat
• 2017: New public blockchain projects, even if they are not yet online
• 2021: DeFi projects and NFT projects are both considered copycats
• 2024: New forms emerge, including: AI agent projects, blue chip project memes, PPB (Protocol-owned-Bots)

In fact, according to the new definition, the alt season has quietly begun . It is like the great waves washing away the sands. In each bull market, new alt projects will replace the old ones and grab attention and funds. Investors need to accept this evolution instead of sticking to the past cognition.

Kevin:

I agree with Todd's point of view. The current crypto market has become more segmented and mature. We should analyze it according to different sectors just like we do with the traditional financial market:

• AI-related projects
• NFT Section
• Exchange Tokens
• Public chain ecology
• DeFi Projects

It is no longer appropriate to describe these projects as "Altcoin". Each sub-segment has its own unique development trajectory and valuation logic.

NingNing:

I would like to analyze it from two core dimensions:

1. Cycle misalignment:

• The current monetary cycle is about a year later than expected
• This directly affects the funding cycle of the entire financial market
• This time difference needs to be added to the traditional analysis

2. Necessary conditions for the cottage season:

• Technological innovation is mature : AI agents may have a major breakthrough within a year. It is expected that many applications will be reconstructed in an AI way by 2025, which will bring new user needs and usage scenarios.
• Funding environment : The current US Treasury yield is close to 4.6%, and is about to hit a record high of 5%. In such a high yield environment, it is difficult to expect hot money to flow into the crypto market on a large scale. We need to wait for a substantial change in monetary policy.

On the whole, I expect that the real full-scale copycat season will not come until the end of 2025 or the spring of 2026. This time point takes into account both the maturity cycle of technological innovation and changes in the macro funding environment.

Ethereum Upgrade

PANews : Two upgrades of the execution layer and consensus layer will be launched in the first quarter of 2025. What changes will these upgrades bring to Ethereum? In addition, when will the subsequent Fusaka upgrade be implemented? What are the specific contents? In addition, what other nodes and new narrative directions are worth paying attention to in Ethereum in 2025?

Pan Zhixiong:

OK, I will mainly talk about the Prague upgrade and the Fusaka upgrade. The Prague upgrade is expected to be launched in the first quarter of next year, with three important improvements:

• The first is EIP-7251, which allows a single validator to hold up to 2048 Ethereum, instead of having to spread it across multiple nodes. This can reduce network redundancy, improve efficiency, and introduce a partial withdrawal mechanism.
• The second is EIP-7702, which is a new form of account abstraction. It allows existing EOA wallets to mount new contract logic, lowering the threshold for users to use smart contract wallets.
• The third is EIP-7691, which targets the blob ecosystem. It increases the block data capacity, optimizes the pricing mechanism, and may reduce the gas fee of Layer 2, but this may affect the deflation of Ethereum.
• As for the Fusaka upgrade, it is expected to be implemented in 2026 and mainly includes two important contents: EOF (Ethereum File Format) and PDAS (Data Availability Sampling). EOF is a major upgrade to the Ethereum virtual machine, while PDAS is a key step in realizing DA technology and preparing for future sharding expansion.

Todd:

I would like to talk about the Prague upgrade from several aspects. The first is the timeline. Although it was originally planned to be implemented at the end of 2024, based on the current progress, it may be postponed to February or March 2025. Now that the fifth version of the test has just been completed, according to Ethereum's usual rigorous attitude, it will need to be tested at least until the 10th or 12th version, and then it will have to be verified by private and public test networks, so it is conservatively estimated that it may be until March next year.

As a blockchain fundamentalist, I particularly appreciate the concept of Ethereum's upgrade. Let me explain why:

First of all, the core value of blockchain lies in decentralization, which means that there must be enough nodes. Each node is like a backup of a ledger. If there are tens of thousands or even hundreds of thousands of backups around the world, the network will be truly indestructible. This is the essential meaning of blockchain.

But now there are some public chains on the market that have taken another path in pursuit of so-called "performance":

• They chose to limit the number of nodes
• Set extremely high hardware requirements for nodes
• Requires expensive servers
• Requires extremely high bandwidth and high performance CPU

As a result, only large cloud service providers such as AWS, Huawei Cloud, and Alibaba Cloud can meet the requirements. On the surface, this does lead to better performance, but the problem is:

• Over-reliance on these centralized cloud service providers
• Once problems occur in these computer rooms, the entire blockchain network may be affected.
• This has happened several times in the past year, with some chains experiencing downtime or outages.

In contrast, the direction of the Prague upgrade is admirable. It makes two important improvements:

Significantly reduce node storage burden:

• Removed ancient historical status data
• Only keep necessary recent transaction data
• Reduce hard drive requirements from several terabytes to perhaps just 100GB
• Allow ordinary home PCs to run nodes

Optimize the pledge mechanism:

• Increase the maximum stake of a single validator from 32 ETH to 2048 ETH
• Solved the problem of node in and out queue congestion
• In the past, if you wanted to stake 3,200 Ethereum, you would need to create 100 nodes.
• Now only two nodes are needed.
• Greatly lowers the threshold for participation, making it easier for ordinary users to participate

What touched me the most was that even though Ethereum has grown to its current size, it still hasn’t given up its original ideals. It didn’t choose the “computer room chain” route in pursuit of performance, but insisted on:

• Continue to lower the threshold for participation
• Pursuing true decentralization
• Allow ordinary users to participate in the network with a home computer
• Expand the number of nodes without affecting performance

While these updates are often delayed, which draws some criticism, I completely understand. This is because it is an extremely complex balance:

• To maintain or improve performance
• We also want to allow more nodes to join
• Also make sure your home PC can run the node

This requires repeated demonstration and discussion to find the optimal solution. Although these technological upgrades may not directly affect the price of the currency, this effort to adhere to the ideal research direction and allow more people to participate in the verification of blockchain ledgers is very admirable.

NingNing :

Every upgrade of Ethereum's underlying protocol will bring about structural changes in the application layer. For example, the Shanghai upgrade brought about the prosperity of LST, and the Cancun upgrade promoted the development of L2. I think this Prague upgrade and Fusaka upgrade may promote the development of DEX based on account abstraction, because the new version reduces the gas cost of creating account abstraction addresses.

In addition, the optimization of the blob pricing mechanism may better reflect L2 demand and affect Ethereum’s token economics. As for PDAs, although the modular narrative has shifted, its specific impact on the industry needs further observation.

2025 Prediction

PANews : What do you think about the market changes in 2025? Will this round of bull-bear transition happen in 25 years?

Pan Zhixiong:

From a macro and policy perspective, there are indeed many positive factors that have not yet been realized, such as the policy adjustments after Trump took office. Another important factor is that Bitcoin has broken through $100,000, which is a milestone psychological price. Compared with the past, this time it has been maintained for a long time after reaching a historical high, indicating that the market has been fully changed. For traditional capital, this price may be a new starting point, and there is still a lot of room for improvement.

Todd:

First of all, let me state that this is not financial advice. There are three things I am most looking forward to in 2025:

• The collateralization of Ethereum ETF is loosened, which will bring more incremental funds
• Trump family involvement in Ethereum DeFi could lead to new developments
• The introduction of RWAs (real world assets) could become a new growth engine and narrative

Kevin:

Although it is a light-hearted topic, we are all very cautious when it comes to compliance issues. I agree with Mr. Pan that the Trump-related benefits are still continuing. But I would like to suggest that everyone think from another perspective: instead of predicting the highest point, it is better to think about where the lowest point will be next year. Just like this time last year, I predicted that it might be the last time to see Bitcoin at $30,000, and now it seems to be true. So will next year be the last time to see $60,000, $80,000 or $90,000? This is related to everyone's investment strategy and risk tolerance.

NingNing:

Predictions are mainly for entertainment purposes, and even the most advanced AI models are difficult to predict accurately. I personally think that 2025 may not be much different from 2024. There will not be a super bull market, but a continued seasonal market. It is recommended to seize the spring and autumn markets. Although there will not be a big Altcoin market, there will be alpha opportunities for sector rotation. I will pay attention to projects in new narrative directions such as chain abstraction, AI agent, consumer chain and PayFi.