Ethereum is looking more like the “Microsoft of blockchains” every day

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The vibes are off 

Ethereum’s got a lot of haters right now. Perhaps Vitalik Buterin singing isn’t the bullish signal everyone’s looking for.

As Bitwise’s Matt Hougan pointed out in a note yesterday, the ETH/BTC ratio hit its lowest level in three years. ETH has struggled with upward momentum in the past few quarters, unlike both bitcoin and solana.

“The vibes in the community are tough,” Hougan wrote. 

It’s a fair assessment, given that the expectation for ETH to follow in bitcoin’s footsteps may be a fair one. Bitcoin received ETF approval earlier this year and then carved out all-time highs just a few months later, and ETH tracked the momentum like a loyal dog. 

And yet… it failed to see a huge boost when its own ETFs were approved earlier this year.

“A key factor is the timing of Ethereum ETFs, which launched during the summer — a typically slower period for both the crypto and ETF markets,” Federico Brokate of 21Shares told me. 

“This is also partly due to Ethereum having a less straightforward narrative compared to Bitcoin, which is widely regarded as ‘digital gold.’”

Hougan, in his note, said that there are a few other reasons: the election risk, competitors and tokenomics. 

“While Bitcoin has largely passed regulatory scrutiny — even SEC Chair Gary Gensler admits it’s not a security — Ethereum has not. The SEC appears to think that staked ETH is a security, and the agency has significant worries about the broader DeFi ecosystem that drives much of Ethereum’s value. If Harris wins and continues the Biden administration’s skeptical posture toward crypto, Ethereum could face challenges,” Hougan added.

From the legal standpoint, Hougan is right. It’s worth noting that ETH could be seen as notching a few wins of its own. 

Looking closely at the eToro settlement, it seems as if the SEC is dismissing any potential action against ETH by allowing the US-based trading platform to continue offering ether to customers. 

Mind you, eToro’s settlement cut quite a few of its offerings, so this could be worth reading into.

Either way, neither Hougan nor Brokate are too concerned about the potential death of Ethereum. They’re both cautiously optimistic that it’ll bounce back and that the “price of ether will ultimately reflect the growing adoption of its various use cases,” Brokate said.

“There are several positive catalysts for Ethereum. Investor education will be key to driving further adoption. As Ethereum’s narrative around real-world assets, tokenization and decentralized finance becomes better understood by both retail and institutional investors, demand is expected to grow. Ethereum’s role as a technological innovator is also gaining traction, particularly among those with a deeper understanding of blockchain technology,” he continued. 

Hougan pointed to Polymarket’s dependence on ETH, and the fact that over half of all stablecoins are issued on Ethereum according to data from rwa.xyz.

To be clear, Polymarket runs on Polygon, but Hougan noted that it “ultimately settles on Ethereum.” 

To Hougan, Ethereum is the “Microsoft of blockchains,” perhaps an apt comparison given that Microsoft is one of the largest tech giants, and yet isn’t seen as particularly sexy. Those of you who remember all of the hype around the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) will remember how Microsoft was left out. But that doesn’t mean it’s not competitive in its industry. 

“Ethereum remains a foundational technology platform with immense potential. Although it may lag behind Bitcoin in terms of brand recognition, its role in decentralized finance, tokenization and as a programmable blockchain makes it a crucial part of the future digital economy,” Brokate explained. 

“Ethereum represents a bet on blockchain innovation, which will only grow in importance as tokenized assets and decentralized financial applications continue to expand. While short-term bearishness may persist, the long-term outlook for Ethereum remains highly positive.”

Perhaps, like Microsoft, Ethereum just needs some time to fully blossom in the eyes of adopters and investors. With FAANG’s fall from grace, Microsoft finally got a seat at the table in the new must-watch grouping of the Magnificent 7.

After all, Ethereum secured itself as essential to crypto, even if the price doesn’t always reflect it. Let it cook.

— Katherine Ross

Data Center

• Ether has outperformed Microsoft stock in the past year — 42% to 32% — although it’s lagging behind slightly over the year-to-date.
• ETH is flat in the past day while bitcoin is ahead 1.2%. (BTC: $59,800; ETH: $2,300.)
• Tron lending protocol JustLend has added the most TVL in the past week, out of apps with $1 billion or more, gaining 4.9% to $5.85 billion.
• DEX trading bots are actioning about 250,000 trades per day right now, down from over a million in March.
• Solana has flipped Ethereum for weekly derivatives volume: $2.666 billion to $2.624 billion.

The flip that flopped

Something about crypto breeds bombastic calls — but ether flipping bitcoin has long been one of the most lofty.

The ETH/BTC ratio focuses on relative cost. “The flippening” is instead about market caps — whether one asset is valued higher than the other in broad strokes.

Market caps can grow quicker than prices can appreciate, and can even trend in opposite directions.

Take solana: It’s still 50% below its all-time high from November 2021, but its market cap is less than 20% below where it was at its peak — and even set a new capitalization record earlier this year. 

Inflation is the culprit. SOL’s circulating supply has swelled by 60% in the past three years, the equivalent of 178 million SOL ($22.6 billion at current prices), or 37% of its market cap right now.

As for ether, it was much closer to flipping bitcoin in the leadup to the 2017 bull run, before the Cambrian explosion of rival layer-1s began pulling market attention away from Ethereum.

The Ethereum flippening was over 83% complete in June 2017 (when BTC traded for under $2,500 and ETH under $350). Now it’s at less than 25%.

There are loads of other rivalries in crypto, both explicit and implicit. 

Shiba inu briefly flipped dogecoin in late 2021 but is now back down to about half its value. 

Sui and aptos both debuted around the same time (between late 2022 and mid-2023) with similar market positionings — resulting in similar valuations. SUI flipped APT for the first time earlier this week.

And perhaps the market doesn’t realize it now, but it could be that BNB and TON are more alike in vibes, development styles and user adoption than Solana is to Ethereum. 

TON is about 20% of the way to eclipsing BNB right now, mostly on account of stalled growth for BNB.

Still, with ETH flipping BTC looking less likely these days, solana flipping ether should be the go-to call for think-posters moving forward.

SOL actually recorded its highest ever progress at the end of last month: $68.46 billion to $295.64 billion — 23% flipped.

A complete flipping from here would require SOL to rally by over 330% while ETH trades flat. 

Seems unlikely without an explosive catalyst, but watch for the gap to close between this cycle and the next.

— David Canellis

The Works

• Revolut could be looking into creating its own stablecoin, CoinDesk reported. 
• Jamie Dimon said that his company, JPMorgan Chase, is one of the larger users of blockchain. 
• Prager Metis, FTX’s former accounting firm, settled with the SEC for $1.95 million over audit negligence.
• SkyBridge’s Anthony Scaramucci expressed optimism for pro-crypto regulation in an interview with Bloomberg.
• Republicans have some questions for SEC chair Gary Gensler over airdrop regulations.

The Riff

Q: Will crypto become more like traditional markets, or will traditional markets become just like crypto?

A line in the Bitcoin maxi handbook says that there’s “bitcoin” and there’s “crypto.”

It goes that Bitcoin is the immaculately conceived cryptocurrency — pure, unable to be gentrified, cypherpunk to the core.

Crypto by comparison is the product of an “industry” of corporate executives. Salaries. Press departments. HR. Not so rock and roll.

One would’ve thought, in that case, that “crypto” would gravitate further toward traditional finance than bitcoin. 

From a pure markets perspective, bitcoin is becoming a lot more like TradFi in terms of how and when it’s traded — Kaiko found that weekend BTC trading volume had hit an all-time low of 16% this year, down from 28% in 2019, with the very Wall Street bitcoin ETFs accelerating that trend.

“Crypto,” meanwhile, is fighting to ensure that decentralization and permissionless-ness are lines in the sand that can never be crossed. Ripple, Uniswap, Coinbase and Kraken and others aren’t going quietly into the regulated night.

That could result in the two worlds bumping off each other, rather than completely merge.

— David Canellis

I think there’ll be compromises on both sides, but I wouldn’t be surprised if crypto ends up making more compromises than traditional markets. 

And that’s okay. 

Look at it this way, traditional markets have been around for a lot longer. Sure, some of the pieces making up the larger puzzle are outdated and crypto fixes that but the foundations of finance are still incredibly strong, especially in the US. 

We’re already seeing the correlation between bitcoin and parts of the wider market, as well as the impact that macro events like potential rate cuts have on crypto. 

I mean, have you had many conversations lately that haven’t gone back to the relationship between the Fed and crypto? I sure haven’t. 

And, despite the SEC’s attempt to weaponize TradFi cornerstones — like Howey — to put down the industry, we’ve seen courts use the same test to push back against the SEC’s claims. 

— Katherine Ross

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