Year-end Special Space Review: Outlook for Ethereum and Altcoin Markets

Here is the English translation of the text, with the content inside <> retained without translation, and no additional analysis or explanation added:

Compiled by: Yuliya, PANews

Recently, PANews hosted an online topic interview on Twitter Space with the theme of "End-of-Year Special Space: Outlook for Ethereum and Altcoin Market". This interview invited Chainfeed founder Pan Zhixiong, Nothing Research partner Todd, Gate Group Chief Business Officer Kevin Lee, and independent researcher NingNing to jointly explore the future potential of the Ethereum and Altcoin markets.

Guest Introduction

Pan Zhixiong:

I am currently doing a technical Newsletter, and have been focusing on Ethereum and the entire ecosystem. Recently, I have mainly focused on two directions: one is to study the progress of programmable cryptography and privacy protocols; the other is to explore the boundaries of OpenAI's capabilities, while also focusing on AI agent-related topics.

Todd:

I am currently doing two things: one is to operate a research-driven fund called Research; the other is to operate an Ethereum non-custodial mining pool called Ebunker, which currently accounts for more than 1% of the global Ethereum computing power. We have been continuously researching Ethereum, and Ethereum's performance has been relatively good in the past few days.

Kevin Lee:

I used to work in a bank. I am currently preparing for the upcoming Consensus conference to be held in Hong Kong, and also planning a large-scale music concert. This will be an important industry event in Hong Kong.

NingNing:

I am currently an independent researcher, and I was previously both an old "cabbage" and involved in the development and operation of exchanges and various vertical products. I am very glad to participate in today's discussion.

Ethereum Controversy

PANews: Why is Ethereum still subject to many criticisms despite being in such an active state?

Pan Zhixiong:

Criticism of Ethereum actually exists every year, which is normal and should exist. The main reason is that it has not achieved the expected growth rate of Bitcoin or Solana. Solana (SOL) has performed brilliantly this year, rising from around $10 at the beginning of the year to nearly $200, while Ethereum's growth has been relatively small. People often have a conclusion first, and then look for reasons, such as the Ethereum Foundation selling coins, the Foundation being bloated, etc.

As for the issue of the Foundation selling coins, we need to look at it more objectively. This is indeed an objective fact, but the interpretation can be two-sided: from a negative perspective, it may indicate a lack of confidence in the project, but from a positive perspective, it is to pay the salaries of engineers and invest in future research. Compared to other projects, Ethereum's transparency is actually higher, and everyone can see the every move of the Foundation.

I think the current problem in the community is that many people are overly dependent on the opinions of KOLs and lack independent thinking. For example, if the Foundation selling coins is done by other public chains, it may be interpreted as "the project party is raising funds for ecosystem development", but when it comes to Ethereum, it becomes negative news. So I think it is important to have independent judgment, rather than blindly following others' opinions.

Todd:

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

Looking back at history, you can see this pattern:

• During the 2017 bull market, it was the ICO boom, and at the time, if you wanted to participate in any quality project, you had to use ETH, which created huge demand;
• During the 2021 bull market, it was DeFi mining (whether L1/L2), and ETH once again became a necessity;
• The current situation in 2024: buying Meme coins on Pump.Fun has created demand for Solana.

Although Ethereum has a staking mechanism, this is more inclined towards large holders. For ordinary investors with only 0.1 Ethereum, the significance of participation is not great. I have calculated that even with the current yield of about 6%/7%, it lacks enough incentive for ordinary investors. This explains why Ethereum has not performed as expected in this round of the market, as it has not found a new strong "monetization" scenario.

Kevin:

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

• In the first half of the year, its performance was actually not bad, with trading volume maintained at a relatively high level, and market expectations were also relatively optimistic.
• But by the second half of the year, the situation had changed significantly. Even though ETFs were approved in the US and Hong Kong, the application scenarios were still not active enough. Meme coins were hot on Solana, GameFi was hot on Telegram, and the DeFi projects that were hot in 2021 have now cooled down, and the NFT market is far less hot than before.

NingNing:

Ethereum's price performance this year has indeed left the market disappointed. There have been news reports recently that a whale has been Longing Bitcoin and Ethereum, and the trade was forced to stop loss, resulting in a loss of several million dollars. Ethereum is facing some issues with the Cancon upgrade, and although there are no technical problems, the consideration of the economic model's impact on the ecosystem is not enough, especially the high setting of the DA layer's blob pricing curve, which affects Ethereum's ability to capture the value of Layer 2.

The rise of Meme and AI agents has led to a large number of users flocking to Solana, and although Ethereum's TVL has reached over $100 billion, far exceeding Solana's $10 billion, in fact a lot of Ethereum is dead money (various staking/wrapped), and there is also a problem of repeated calculation. Now it has become difficult to issue coins or do projects on Ethereum, and raise funds on DEXes, 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.

Layer 2 Development Status

PANews: In the Ethereum Layer 2 field, the ZK narrative was once the focus, but after the landing of several large-scale ZK projects and token airdrops, negative news has emerged. So, has the ZK track in Ethereum already failed? Is the Layer 2 landscape already determined? Is it possible that ZK L2 will surpass OP L2 by 2025?

Pan Zhixiong:

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

• In terms of scaling, OP can also meet the demand, while the burden of ZK generating proofs is even greater
• ZK is more suitable for use in privacy technology, but privacy technology has been subject to policy restrictions recently
• Users find it difficult to directly feel the advantage of ZK in privacy

Ethereum is currently pushing ZK applications in two directions:

• Privacy and Scaling Exploration Group (such as the 0xPARC project): Realize specific scenario applications, such as personal tickets, email content reading, etc.
• Development tools: Provide open-source tools for developers to facilitate reading specific content while protecting user privacy

Todd:

I may have a more radical opinion. First, we must admit that the industry's strongest applications are currently Binance and Coinbase. Looking at the Layer2 rankings, Arbitrum is first, Base is second, and OP is third. Base's second-place ranking is largely due to Coinbase's support for listing.

OP's ability to convince Coinbase to make this decision has given it a huge advantage in competing with 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 deposit and withdrawal. In the past, ZK withdrawal in one day was an advantage, while OP required seven days. But now, mainstream exchanges like Binance also support fast OP deposits and withdrawals, basically 20-30 minutes, which has actually neutralized the timeliness advantage of ZK.

From the perspective of technical maturity, in the rating system launched by L2Beat (the higher the better, stage zero means the sequencer is still controlled by the security committee, stage one is managed by whitelisted sequencer providers, and stage two is fully decentralized), only OP and Arbitrum have reached stage one level, while most ZK projects are still at stage zero. This is also why mainstream exchanges are more inclined to support OP technology.

Kevin:

Here is the English translation of the text, with the specified terms translated as instructed:

The current biggest problem is the lack of necessary use cases. Looking back to 2021, the NFT market was booming, leading to high gas fees. At that time, Layer2 solutions, whether OP or ZK, began to emerge. But in this cycle, we have not seen a similar application explosion.

Additionally, many other L1 blockchains have already solved the scalability problem, and users do not have an urgent need to use L2. The reality is, when users find that other blockchains can already meet their needs, why would they still use Ethereum and additionally use L2 solutions on Ethereum?

However, I still have confidence in Ethereum. If new applications emerge in the future, such as possibly NFTs or other applications, which cause Ethereum to face scalability issues again, these L2 solutions will be able to truly demonstrate their value.

NingNing:

Now the OP Stack also provides a ZK rollup solution, but the adoption rate is not high. Although ZK has technical advantages, it has not been translated into market advantages. This is a dilemma for the ZK camp, but not without hope, the key is how to find a breakthrough.

Altcoin ETF

PANews: How do you view the change in Ethereum's status as the leader of Altcoins? In addition, projects such as Litecoin, Solana and Ripple are also applying for ETFs, and if Trump returns to power, these coins' ETFs may be approved. Will they repeat the lackluster market performance of the Ethereum ETF?

Pan Zhixiong:

Overall, Ethereum's leading position remains stable. 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 the application ecosystem, Ethereum has the richest and most representative DeFi and NFT application ecosystem. As for the ETF approval process of other projects, I think this is a process that requires the market and regulators to adapt and progress step by step. Different projects may face different challenges and opportunities.

Todd:

On the topic of ETFs, I want to analyze it from several key dimensions:

• First, small-cap cryptocurrencies face practical difficulties in launching ETFs. Take Litecoin as an example, its current market capitalization is about $7.7 billion. Even if we assume that 10% of the coins flow into the ETF market (about $770 million), with a management fee of 0.2%, the annual revenue would only be over $1.4 million. This revenue scale may be difficult for large financial institutions like BlackRock and Fidelity to even cover the basic expenses of the operating team, let alone the high-paying positions like legal affairs.
• Secondly, there is the issue of staking rewards. Current ETF products do not support staking functions, which is an obvious shortcoming for projects like Solana that provide about 7% risk-free staking rewards. Investors will find that by choosing an ETF, not only can they not obtain staking rewards, but they also have to pay management fees, and this difference will inevitably affect the flow of funds.

Kevin:

As a practitioner who has worked in traditional banking for over a decade, I believe the current cryptocurrency ETF products are still very primitive. In the traditional financial market, ETFs usually do not only track a single asset, but have developed into more diverse product forms such as index ETFs and sector ETFs. The cryptocurrency market will inevitably see the emergence of more diversified ETF products in the future, such as Layer 1 sector ETFs and DeFi sector ETFs. In this evolution process, Ethereum, as the largest smart contract platform, will continue to play its core role.

NingNing:

I've noticed an interesting phenomenon, where market expectations and reality have a significant gap. Previously, the market generally believed that the approval of ETFs would bring a large amount of incremental capital, driving the rise of the entire Ethereum ecosystem and related Altcoins. But the actual situation is that in the US stock market, cryptocurrency ETFs may only be seen as a type of small-to-medium tech stock.

Looking at the market performance since November, the capital has not flowed in the expected path of "Bitcoin ETF → Ethereum ETF → Altcoin ETF", but rather projects that have been deeply cultivated in the US market, such as XRP and Stellar (XLM), have performed more prominently. This gap between market perception and reality is worth investors' deeper reflection.

Increased Inflows into Ethereum ETFs

PANews: After the approval of the Ethereum ETF, its inflows have been lagging behind the Bitcoin ETF. But recently, we've seen the inflows into Ethereum ETFs gradually increasing. Could you please analyze the reasons behind this? Is it possible that the inflows into Ethereum ETFs will surpass the Bitcoin ETF in the future?

Todd:

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

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

• Price threshold effect: When the price of Bitcoin reaches new highs, such as $150,000 or $200,000, investors will naturally look for relatively lower-priced alternatives. Since small-cap coins are unlikely to obtain ETF approval (because the management fee income may not cover the costs), Ethereum will become the most natural choice.
• Staking reward issue: Currently, one obvious disadvantage of the Ethereum ETF is the inability to support staking. If investors directly purchase Ethereum on the chain and perform native staking, they can obtain about 3.26% risk-free returns. Buying the ETF will miss out on this part of the return. This does affect the decision-making of some investors, but if the ETF can support staking in the future, its attractiveness will be greatly enhanced.
• Opportunity for mixed ETFs: The market may likely see the emergence of mixed ETF products with both Bitcoin and Ethereum, such as an 80% Bitcoin + 20% Ethereum configuration. This "package" product will attract investors who want to diversify their investments, bringing new capital inflows to Ethereum.

Although the capital inflows into the Ethereum ETF may still be limited in the short term, based on these three reasons, I am optimistic about its long-term development, it just needs some time for the market to adapt.

Kevin:

I analyze this from the perspective of trading strategies, and I see two potential capital flows:

• Long-Short strategy: There are indeed traders attempting to go long on Ethereum while shorting Bitcoin in such an arbitrage strategy. But from October last year to now, as Bitcoin has outperformed Ethereum, the effect of this strategy has not been ideal. The attractiveness of this strategy has greatly diminished.
• Capital rotation effect: A feature of ETFs is that they provide a more convenient channel for capital conversion. For example, when investors sell their Bitcoin ETF, they receive cash, which they 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 switch between different assets; the disadvantage is that the capital may not necessarily stay within the cryptocurrency market and continue to circulate.

So my judgment is that while the inflows into the Ethereum ETF will continue to increase next year, the possibility of it surpassing the Bitcoin ETF is not high.

When Will the Next Altcoin Season Arrive?

PANews: The Ethereum ecosystem seems to still be focused on infrastructure, does it need to shift to the application layer? Additionally, many investors are wondering when the next Altcoin season will arrive.

Pan Zhixiong:

This question is very interesting. Although Ethereum has been developing for more than a decade, and Solana's performance is also quite good, from the perspective of infrastructure, there is still a lot of room for improvement. Let me give a few specific examples:

• Parallel processing has not been widely implemented
• The construction of the privacy layer is still imperfect
• The front-end data storage problem of decentralized applications
• The reliability and continuous accessibility of data
• The user experience gap with 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 possibly approach the Web2 experience level.

As for the application layer, the new generation of applications will certainly develop along with the improvement of the infrastructure. For example, look at the evolution of Uniswap: from V1 to V4, each upgrade has been adapting to the new infrastructure capabilities, considering performance optimization, multi-Layer2 deployment, cross-application calls, and automation and other new features.

Here is the English translation of the text, with the content inside <> retained and not translated, and without any additional analysis or commentary:

I believe the altcoin season will definitely come, which is usually accompanied by:

• Innovative gameplay mechanisms
• New liquidity models
• New monetization methods
• Broader user participation

Todd:

The key to this question lies in how to define "altcoin". This definition has undergone significant evolution in the past few bull market cycles:

• 2013: Modifying the Bitcoin code and renaming it was considered an altcoin
• 2017: New public chain projects, even if they were not yet online
• 2021: DeFi projects and NFT projects were all considered altcoins
• 2024: New forms will appear, including AI agent projects, meme projects of blue-chip projects, and Protocol-owned-Bots (PPB)

In fact, if based on the new definition, the altcoin season has already quietly begun. It's like a big wave washing away the sand, with new altcoin projects replacing the old ones in each bull market, competing for attention and capital. Investors need to accept this evolution, rather than sticking to past perceptions.

Kevin:

I fully agree with Todd's view. The current cryptocurrency market has become more segmented and mature, and we should analyze it by different sectors, just like the traditional financial market:

• AI-related projects
• NFT sector
• Exchange tokens
• Public chain ecosystem
• DeFi projects

Using the unified term "altcoin" to describe these projects is no longer appropriate. Each niche has its unique development trajectory and valuation logic.

NingNing:

I want to analyze it from two core dimensions:

1. Cycle mismatch:

• The current monetary cycle is about a year later than expected
• This directly affects the capital cycle of the entire financial market
• It is necessary to add this time difference on the basis of traditional analysis

2. Necessary conditions for the altcoin season:

• Technological innovation maturity: AI agents may have major breakthroughs within a year, and it is expected that many applications will be restructured in an AI way by 2025, which will bring new user demand and usage scenarios
• Capital environment: The current US bond yield is close to 4.6%, almost reaching the historical high of 5%. In such a high-yield environment, it is difficult to expect hot money to flow into the cryptocurrency market on a large scale, and we need to wait for a substantial change in monetary policy

In summary, I expect the real comprehensive altcoin season to wait until the end of 2025 or the spring of 2026. This time point takes into account both the maturity cycle of technological innovation and the changes in the macroeconomic capital environment.

Ethereum Upgrades

PANews: In the first quarter of 2025, Ethereum will launch two upgrades, one for the execution layer and one for the consensus layer. What changes will these upgrades bring to Ethereum? When will the subsequent Fusaka upgrade be implemented? What are the specific contents? In addition, what other notable milestones and new narratives will Ethereum have in 2025?

Pan Zhixiong:

Okay, let me talk about the Prague upgrade and the Fusaka upgrade. The Prague upgrade is expected to go live in the first quarter of next year, with three important improvements:

• First is EIP-7251, which allows a single validator to hold up to 2,048 Ether, instead of having to be distributed across multiple nodes previously. This can reduce network redundancy, improve efficiency, and introduce a partial withdrawal mechanism.
• Second is EIP-7702, 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 is for the blob ecosystem. It increases the block data capacity, optimizes the pricing mechanism, and may reduce the gas fees of Layer 2, although this may affect Ethereum's deflationary nature.
• As for the Fusaka upgrade, it is expected to be implemented in 2026, mainly including two important contents: EOF (Ethereum Object Format) and PDAS (Proposer-Dealer Auction System). EOF is a major upgrade to the Ethereum Virtual Machine, while PDAS is a key step in implementing DA technology, preparing for future sharding expansion.

Todd:

I want to talk about the Prague upgrade from several aspects. First, the timeline issue. Although the original plan was to implement it at the end of 2024, based on the current progress, it may be delayed to February or March 2025. The fifth version of the test has just been completed, and according to Ethereum's rigorous attitude, at least the 10th or 12th version of the test is still needed, followed by verification on private and public test networks, so the conservative estimate may be around March next year.

As a blockchain purist, I particularly appreciate the philosophy behind Ethereum's upgrade this time. Let me explain why:

First, the core value of blockchain lies in decentralization, which means there need to be enough nodes. Each node is like a backup of the ledger, and if there are tens of thousands or even hundreds of thousands of backups worldwide, this network will be truly indestructible. This is the essence of blockchain.

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

• They choose to limit the number of nodes
• Set extremely high hardware requirements for nodes
• Require the use of expensive servers
• Require huge bandwidth and high-performance CPUs

The result of this approach is that only large cloud service providers like AWS, Huawei Cloud, and Alibaba Cloud can meet the requirements. On the surface, this can indeed bring better performance, but the problem is:

• Overly dependent on these centralized cloud service providers
• If these data centers have problems, the entire blockchain network may be affected
• This situation has occurred multiple times in the past year, with some chains experiencing downtime or shutdowns

In comparison, the direction of the Prague upgrade is admirable. It has made two important improvements:

Significantly reduce the storage burden of nodes:

• Remove ancient historical state data
• Only keep the necessary recent transaction data
• Reduce the hard disk requirement from several TB to possibly only 100GB
• Allow ordinary home PCs to run nodes

Optimize the staking mechanism:

• Increase the staking limit for a single validator from 32 Ether to 2,048 Ether
• Solve the congestion problem in the node entry and exit queue
• In the past, to stake 3,200 Ether, 100 nodes were needed
• Now only two nodes are enough
• Greatly reduce the participation threshold, making it easier for ordinary users to participate

What touches me the most is that even though Ethereum has developed to this scale today, it still has not abandoned its original ideals. It has not chosen the "data center chain" route for the sake of performance, but has insisted on:

• Continuously reducing the participation threshold
• Pursuing true decentralization
• Allowing ordinary users to participate in the network with home PCs
• Expanding the number of nodes without affecting performance

Although these updates are often delayed and subject to some criticism, I fully understand. Because this is an extremely complex balance:

• Maintain or improve performance
• Allow more nodes to join
• Ensure that home PCs can also run nodes

It requires repeated argumentation and discussion to find the optimal solution. Although these technical upgrades may not directly affect the coin price, this persistence in the research direction of the ideal, the effort to make the blockchain ledger verifiable by more people, is truly worthy of respect.

NingNing:

Each Ethereum protocol upgrade will bring structural changes to the application layer. For example, the Shanghai upgrade led to 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 account abstraction-based DEXes, as the new version reduces the gas cost of creating abstracted addresses.

In addition, the optimization of the blob pricing mechanism may better reflect the demand of L2, affecting Ethereum's token economics. As for the PDAS part, although the modular narrative has already shifted, its specific impact on the industry still needs further observation.

2025 Forecast

PANews: How do you see the market changes in 2025? Will the bull-bear cycle transition occur in 2025?

Pan Zhixiong:

From a macro and policy perspective, there are indeed many positive factors that have not yet materialized, such as policy adjustments after Trump took office. Another important factor is that Bitcoin has broken through $100,000, which is a milestone psychological price level. Compared to the past, this new all-time high has been maintained for a relatively long period, indicating that the market has undergone sufficient turnover. For traditional capital, this price level may be a new starting point with a lot of room for growth.

Todd:

First of all, I want to clarify that this is not financial advice. For 2025, I am most looking forward to three things:

• The unlocking of Ethereum ETF staking, which will bring more incremental capital
• The participation of the Trump family in the Ethereum DeFi field may bring new developments
• The introduction of RWA (Real World Assets) may become a new growth engine and narrative

Kevin:

Although it's a casual topic, we are all very cautious about compliance issues. I agree with Professor Pan's view that the positive factors related to Trump are still ongoing. But I want to suggest looking at it from another angle: instead of predicting the highest point, it's better to think about where the lowest point will be next year. Just like I predicted last year at this time that we might see Bitcoin at $30,000 for the last time, and now it seems to be the case. So will next year be the last time we see $60,000, $80,000 or $90,000? This is related to everyone's investment strategy and risk tolerance.

NingNing:

Forecasting is mainly for entertainment purposes, and even the most advanced AI models are difficult to accurately predict. Personally, I think 2025 may not be much different from 2024, without a super bull market, but rather a continuation of seasonal trends. I suggest capturing the opportunities in the spring and autumn markets. Although there will not be a major Altcoin bull market, there will be alpha opportunities in sector rotation. I will focus on projects in new narrative directions such as chain abstraction, AI agents, consumer chains, and PayFi.