Author: Kaori, BlockBeats
After the correction phase of the Altcoin market in the past few days, the price of ETH has once again stood above $3,900. Looking back on the development of Ethereum over the past year, there are many complex factors and emotions. On the one hand, the successful completion of the Cancon upgrade and the official approval of the spot ETF have brought a new bullish outlook in terms of technology and fundamentals; on the other hand, with the consecutive breakthroughs of new highs in BTC, SOL, and BNB, the price of ETH is still hovering around the $4,000 mark.
From the price trend chart of ETH this year shown in the above image, Ethereum has experienced three major stages this year, and the three stages of the rally correspond to different reasons. At the beginning of the year, the approval of the Ethereum spot ETF caused the price of Ethereum to rise with the market sentiment, once breaking through $4,100, but at the end of March it also started to decline with the overall market. Then due to the strong surge of SOL and its ecosystem, the Ethereum ecosystem faced a large outflow of liquidity.
In May, the Ethereum spot ETF was approved, and the price briefly surged, but the demand was not as strong as that for the BTC ETF. The initial market reaction to the launch of the Ethereum ETF was negative, as speculative investors who had bought the Grayscale Ethereum Trust and expected it to convert to an ETF took profits, resulting in a $1 billion capital outflow, putting downward pressure on the Ethereum price. In addition, the narrative of Ethereum as a technology-driven product is less appealing to traditional markets compared to BTC's "digital gold", and the SEC's restriction on the Ethereum spot ETF's involvement in staking also objectively weakened its attractiveness.
After that, the Ethereum Foundation, the re-staking ecosystem, and the debate over the roadmap came one after another, and Ethereum went through a dark period.
In November, with the US election dust settled, the crypto-friendly Republican party and Trump brought stronger confidence and liquidity injection to the entire crypto ecosystem, and Ethereum also ushered in the third wave of this year's rally. But this rally is different from the past, with institutions openly entering the market, and the improvement of the liquidity fundamentals, the market is using capital to tell us what institutions recognize and are optimistic about; and Ethereum is destined to continue its original intention of being the "world computer".
Since December, the Ethereum spot ETF has had net inflows of over $2.2 billion for half a month, and Nate Geraci, president of The ETF Store, said on social media that advisors and institutional investors are just beginning to focus on this area.
In the third quarter of this year, major banks such as Morgan Stanley, JPMorgan Chase, and Goldman Sachs have significantly increased their holdings of BTC ETFs, with their quarterly holdings nearly doubling. But their investment scope is not limited to BTC, as the latest 13F filings show that these institutions have also started buying Ethereum spot ETFs since then.
In addition, in the first two quarters, the Wisconsin State Investment Board and the Michigan Retirement System respectively purchased BTC spot ETFs, and Michigan further purchased more than $13 million worth of Ethereum spot ETFs in the third quarter. This indicates that pension funds, which represent low-risk preferences and long-term investments, not only recognize BTC as a digital store of value, but also value the growth potential of Ethereum.
When the Ethereum spot ETF was first approved, JPMorgan Chase had pointed out in a report that the demand for Ethereum spot ETFs would be far lower than that for BTC spot ETFs, but the report estimated that Ethereum spot ETFs would attract net inflows of up to $3 billion for the rest of the year, and if staking was allowed, this figure could reach $6 billion.
Jay Jacobs, head of U.S. thematic and active ETFs at BlackRock, said at the "ETFs in Depth" conference that "our exploration of BTC, especially Ethereum, is just the tip of the iceberg, with only a small number of clients holding (IBIT and ETHA), so our focus is on this area rather than launching new Altcoin ETFs.
In a survey report by Blockworks Research, the vast majority (69.2%) of respondents currently hold ETH, of which 78.8% are investment companies or asset management companies, indicating that driven by yield generation and network security contributions, the willingness of institutions to participate in ETH staking has reached a critical mass.
Institutions are actively participating in ETH staking, but the degree and method of participation vary, and the uncertainty of regulation has led to different attitudes from various parties, with some institutions being cautious and others not too concerned, and institutional participants having a high awareness of the operations and risks associated with staking.
After the FTX collapse, companies like Coinbase, Kraken, and Ripple have been severely cracked down by US regulators like the SEC, and many crypto projects can't even open accounts with mainstream US banks. And the traditional financial institutions that entered the market during the last bull market due to DeFi have also suffered huge losses, such as Toma Bravo, Silver Lake, Tiger, and Cotu, who not only suffered setbacks on FTX, but also invested at high valuations in some crypto projects that failed to fulfill their grand promises, and their funds have not yet flowed back.
In the second half of 2022, many DeFi projects were forced to migrate outside the US, and according to qw, the co-founder of Alliance DAO, "About 80% of crypto startups that met the standards were located in the US two years ago, but this proportion has been declining since then and is now only about 20%."
But on November 6, Trump won the election, and the green light that the US financial system has been waiting for has lit up.
Trump's victory undoubtedly cleared the regulatory clouds for institutional adoption.
Establishing the Department of Government Efficiency, directly gathering a series of Wall Street financial elites such as Musk, Petty, and Markandsen under its banner, and then appointing Paul Atkins as the SEC chairman, Trump also appointed PayPal co-founder David Sacks as the "White House AI and Cryptocurrency Affairs Officer". A series of measures all indicate that Trump will build a government with relaxed crypto regulation.
JPMorgan Chase analysts said that several stalled cryptocurrency bills, including the Financial Innovation and Technology Act (FIT21), which clarifies the regulatory responsibilities of the SEC and CFTC, could be quickly approved after Trump takes office, potentially providing the much-needed regulatory clarity for the crypto industry. They also said that as the regulatory framework becomes clearer, the SEC's enforcement-heavy strategy may evolve into a more collaborative approach, and its restriction on banks holding digital assets under Staff Accounting Bulletin 121 (SAB 121) may be repealed.
The high-profile lawsuits against companies like Coinbase may also be eased, settled or even withdrawn. The regulatory notices issued to companies like Robinhood and Uniswap can be reconsidered, thereby reducing the litigation risk for the broader crypto industry,
Here is the English translation, with the terms in <> retained and not translated: The Trump team is considering drastically reducing, merging, or even eliminating the major bank regulatory agencies in Washington, in addition to department and legislative reforms. Insiders reveal that Trump advisors have asked some government efficiency officials whether agencies like the Federal Deposit Insurance Corporation (FDIC) could be abolished during interviews with potential bank regulatory candidates. Trump advisors have also inquired about potential candidates for the FDIC and the Office of the Comptroller of the Currency. Additionally, they have proposed plans to merge or overhaul the FDIC, OCC, and Federal Reserve. As policy dividends are gradually released, larger institutional funds in the US market are expected to return to the market. More stable capital such as family offices, endowments, and pension plans will not only invest in spot ETFs, but also re-enter the sector that was validated in the previous cycle. Compared to 2021, the total supply of has reached an all-time high, and in the over a month since Trump's victory, the total supply has increased by nearly $25 billion, with the current total market value reaching $202 billion. As the leading listed company in the US, has made contributions not only in politics, but also in the sector this year. It serves as the largest ETF custodian, and has also launched . Due to facing the same custodial and counterparty risks as most ETFs, some traditional financial institutions may re-evaluate whether to continue paying fees to hold ETFs, and instead turn to participating in the ecosystem at almost no cost. This shift could bring capital inflows to well-tested protocols, especially when the yields offered by are more attractive than traditional finance. Another major sector this cycle is . In March this year, formally entered the track by issuing the tokenized fund (BlackRock USD Institutional Digital Liquidity Fund) in collaboration with the US tokenization platform . Capital giants like and that control large pools of funds are also preparing to enter this market, injecting a large amount of liquidity. After the family launched a project, compliant has been a hot topic. Established blue-chip projects like , , and immediately responded with price increases after 's victory, while newcomers in the sector like , , and also hit new highs. Meanwhile, the project has been frequently trading system tokens recently, exchanging 5 million for 1,325 in multiple transactions, and then buying 10 million dollars' worth of , 1 million dollars' worth of , and 1 million dollars' worth of in its multi-signature address. The news of increasing their holdings has been constant, indicating that both institutions and whale accounts are refocusing on the ecosystem. The performance of new and old projects in the sector has been remarkable in terms of price. Currently, the TVL is around $100 billion, while the total value of and related assets is around $4 trillion, with only 2% of the capital actively participating in , which is still very small compared to the overall market size. This means that under the warming regulatory environment, still has huge growth potential. is a typical beneficiary of this "capital inflow" cycle. Its price had already broken through before 's victory, and since then its TVL and revenue have experienced explosive growth: TVL has surpassed the October 2021 historical high of $22 billion; the token price has risen from the year's low of 80 to break the March high of 140 in early September, and has accelerated its rise since late November; the protocol's daily total revenue has exceeded the September 2021 second-highest peak, and its weekly revenue has set a new high. Although has recently upgraded to V4, its technical innovation may not be sufficient to support such a massive increase. Regulatory and capital factors are obviously more important drivers, and this driving force may also spill over to the sector, which also gained institutional favor in the previous cycle. In the middle of this year, encountered a series of controversies and discussions related to ecosystem development, and with the rise of , new and old public chains have begun to seize 's developers and user base, causing the ecosystem to begin to shake. As the first blockchain to build smart contracts, has successfully made various major institutions invest in it through its first-mover advantage in the last cycle, whether it's , , , or the , they cannot escape the ecosystem, and its "world computer" vision has taken root in people's minds. Although 's fundamental liquidity has seen optimistic improvements, its on-chain data indicators such as average daily transaction volume, fees, and active addresses have not shown significant growth. This indicates that 's on-chain activity has not risen in sync with its price, and its block space is still oversupplied. Over the past few years, 's focus has been on building the infrastructure for , providing a large amount of cheap block space for the market. This measure has not only improved the access performance of to blocks and reduced the transaction costs of L2 scaling solutions, but also due to insufficient market liquidity and low transaction demand, 's massive block space has not been fully utilized. However, this is not a real problem in the long run. As mentioned earlier, institutional capital is gradually returning, and even starting to build customized blockchain use cases. For , which has security and flexible architecture, the B2B market is its advantage. It not only has an overwhelming advantage in security, but can also be compatible with numerous EVM projects, providing developers with an almost "impossible to be fired" choice. 's long-term value will depend on the scarcity of its block resources, that is, the actual and sustained demand for block settlement in the world. As institutions and applications continue to flow in, this scarcity will become more and more prominent, laying a more solid value foundation for . is an institutional "world computer", starting from , institutions will solve the problems of 's block oversupply and roadmap disputes in the future. In early December, researcher Jon Charbonneau wrote a long article analyzing why needs a clearer "North Star" goal, and also suggested that 's ecological power should be focused on the "world computer" concept, just as is the "digital gold" and is the "on-chain Nasdaq". After 10 years, is no longer in the startup stage, and in the next 10 years, 's future is already clear.
