The Bullish and the Bearish Case For Bitcoin Following the Rally to $40K (On-Chain Analysis)

The Bullish and the Bearish Case For Bitcoin Following the Rally to $40K (On-Chain Analysis)

Going through the recent week and touching the $40K mark, there are some promising signs in on-chain data that could lead to a further price recovery in the market. However, some metrics still make an immediate rally back to the all-time high a questionable probability.

Let’s explore the bull and the bear case for Bitcoin’s price in the current market condition, stemming from predominantly on-chain information.

Supply Shock – The Bull Case

To summarize the overall bullish indications from an on-chain perspective, we can look at the exchange net position change on all exchanges.

This examines the change of the supply held in exchange wallets over the past 30 days. To make things smoother, there’s a 90-SMA version of the metric presented in the chart below.

Historically speaking, there is a repeated pattern in all last three bitcoin cycles.

Around the middle of the cycle, wherein the bearish phase, a significant capitulation usually occurs, and we observe a slight net decline in the exchange’s reserve (red circle)

Before the significant bull run phase, there’s an enormous negative net change in exchanges’ Bitcoin reserve (yellow rectangle). In practicality, this is an accumulation phase for experienced players in the market. These stakeholders intend to withdraw from exchanges wallets.

Through the following phase, Euphoria, wherein the prominent entities in the market (whales, institutional players, and smart money) are selling into the market’s strength. Here in this phase, inflowing Bitcoins into exchanges are bought by newcomers who intend to hold their assets on the exchanges.

The first two parts of the above pattern have already occurred in the current cycle. Therefore, assuming Bitcoin repeats the three parts of the cycle, we could be at the beginning of a long bull run, similar more to that of 2013 with a double top formation.

Low Activity – The Bear Case

Besides the positive signals from an on-chain viewpoint, the metrics attributed to the activity level on the network still do not promise a robust recovery.

This lack of activity on the network can be observed in the Number of Active Addresses and Number of Transactions. These parameters have fallen because of fear, uncertainty, and doubt (FUD) among newcomers after the recent 50% drop. The primary fuel needed for a bull run is the inflowing capital by these investors who are willing to buy Bitcoin at inflated prices.

Conclusion

Even though some early evidence, such as supply shock structure, could lead to a healthy rally to a new ATH, some on-chain metrics are still not back to the pre-price crash. The most critical metrics to watch here are the volume, number of transactions, and new addresses on the blockchain.

The above analysis is compiled by on-chain analyst CryptoVizArt for CryptoPotato

VanEck: The (Mostly) Bullish Case For Ethereum

Often overshadowed by Bitcoin in the news, Ethereum offers unique opportunities for investors and is on track for a bullish 2021, said VanEck in a recent webinar.

Ethereum Is Rapidly Growing

While Ethereum often trends in the same direction as Bitcoin, it is more than just a cryptocurrency token.

Ethereum is also an open-source blockchain that allows for many types of decentralized applications to be built on top of it (i.e., decentralized finance, or DeFi).

Ethereum generates its revenue from what is paid the Ethereum miners in the form of new tokens, as well as “gas” fees. The market-cap-to-miner revenue ratio can be compared most closely to Web 2.0 firms, although the top line for Ethereum is growing at a much more rapid pace.

The entire Ethereum protocol is on track for a gross transaction value of $4 trillion and will generate roughly $18 billion in revenues in 2021. Year-over-year Ethereum revenues have increased more than ten-fold between Q1 of 2020 and Q1 of 2021.

Ethereum: The Triple-Point Asset

VanEck believes that Ethereum’s potential is as a “triple-point asset.” Ethereum is a capital asset, a consumer asset, and a store of value.

A capital asset is one that creates a continuous store of value; in the case of Ethereum, that means Ethereum owners can claim the future network fees it will carry.

A consumer asset is one that can be consumed and turned into a different asset, after which it has no further value. With Ethereum, this is represented by ether tokens being consumed whenever it is traded.

A store of value is defined as something with value that can neither be consumed nor create income on its own; Ethereum (ETH) can currently be paired with other assets and used as collateral (or locked) on decentralized exchanges.

Ethereum Outperforms Consistently

Ethereum presents a paradigm shift across many sectors, but especially internet tech stocks, says VanEck.

For example, the “take rate,” or ratio between transaction values and revenue, of Ethereum is much lower compared to those for current, established internet companies.

In addition, sales growth of Ethereum, as well as DeFi apps, are astronomical in comparison to the sales growth of the global internet thus far in 2021. Ethereum has exhibited close to 300% growth, while DeFi is experiencing an estimated 1300% growth.

The price of Ethereum remains comparable to the price of global internet.

VanEck asserts that the market cap for Ethereum could exceed $2 trillion under the right circumstances (including a successful rollout of a critical update this month). Conversely, it could overshoot demand estimates and print too much ETH.

VanEck believes the bullish first possibility is more likely.

Where Does Ethereum Go Next?

The biggest unknown for Ethereum is how smoothly Ethereum 2.0 will roll out, and what changes it will create long-term.

ETH 2.0 offers drastically reduced energy consumption at 95% less consumption than ETH 1.0, as well as 99% more energy efficiency than Bitcoin. ETH 2.0 will also require less hardware and therefore will be more accessible to a greater number of people.

The update will bring about changes too by eliminating gas fees, or the fees paid to transact on the network, and burning them in a move that is akin to a share buyback.

If these fees are burned faster than new supply is created due to increasing demand, it could have a potentially deflationary impact on Ethereum.

When asked if users would find incentive in using platforms other than Ethereum, VanEck explained that the FAANGM stocks had consistently shown that scale matters when it comes to software platforms.

Ethereum is currently the largest platform in DeFi, with the greatest number of developers, applications, and users. Because the Ethereum platform is so broadly diversified and offers so many options, the size keeps costs down and would make switching cost-prohibitive, according to VanEck.

For more news, information, and strategy, visit the Crypto Channel.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

David Z. Morris: The Bear Case for Bullish is Spelled E-O-S

There was a wave of what I’ll call bemusement in crypto circles last Friday when blockchain firm Block.One and investors including Peter Thiel announced they would take the cryptocurrency exchange Bullish public. The listing would take place via a special purpose acquisition company (SPAC), or a merger with a listed company, at a valuation of $9 billion. There are a number of uncertainties swirling around the plan, not least because the exchange doesn’t exist yet.

David Z. Morris is CoinDesk’s chief insights columnist.

In fact, Bullish was nearly invisible until May of this year, when Block.One announced that it was committing bitcoin and EOS tokens, then worth nearly $10 billion, to create a large liquidity pool for the exchange. The exchange itself is expected to launch later this year – when it will go up against a half-dozen far more established players in the U.S. exchange market, even as exchange activity trends downward as a bear market sets in.

All that is reason enough to question the wisdom of Bullish as an investment. But the real eyebrow-raiser for my money is the involvement of Block.One and its downtrodden smart-contracts platform EOS. Given years of consistently disappointing results from the company and affiliated projects, and a strange push to use EOS in the operation of the otherwise fully centralized Bullish, many crypto longtimers immediately wondered whether building a profitable crypto exchange is the only motive for the SPAC.

The brief, tragic history of Block.One and EOS

Block.One was founded in 2016 as a launchpad for EOS, a would-be “Ethereum killer” that raised a record $4.1 billion via an initial coin offering in the first half of 2018. Like many ICOs, that raise was later deemed an unregistered security offering by the U.S. Securities and Exchange Commission. Block.One paid a $24 million fine in 2019 – seen by many at the time as a comically paltry slap on the wrist relative to the amount raised.

Despite its massive war chest, EOS has failed to become even a remotely credible competitor to Ethereum, largely thanks to a failure to address deep design flaws. EOS was conceived by Dan Larimer, a co-founder of Block.One along with CEO Brendan Blumer, using a “delegated proof-of-stake” design that Larimer touted as the next generation of blockchain tech. But that didn’t really pan out: Within months of EOS’ launch, it became clear the voting process for selecting validator nodes was being aggressively gamed by cartels looking to capture block rewards.

That led to a “brain drain” as engaged, grassroots node operators were effectively pushed off the network. The problems also turned off developers: EOS currently hosts only one of the top 25 distributed applications (dapps), according to DappRadar. No EOS dapp has daily volume over $100,000, while Ethereum has at least 25 dapps with daily volume over $1 million. The Binance Smart Chain, Tron and Polygon systems have all attracted more activity than EOS, even though BSC and Polygon launched more recently.

Larimer joined that brain drain in January when he announced his departure from Block.One and EOS to work on “personal projects.” That continued a trend for Larimer, a once-prominent cryptocurrency leader who over time gained a reputation for moving on swiftly from projects he founded. That’s what happened at both BitShares, Larimer’s first big project, and Steem, a decentralized media project. BitShares is now essentially dormant, and Steem has struggled after Larimer’s departure.

Those missteps and failures led to abjectly awful bull market performance by the EOS token, which sank by more than 30% over the past 12 months in BTC terms. Since its peak in May 2018, the token is down nearly 95% versus BTC. Formerly a top 10 token, EOS has sunk to rank 27 by market cap, according to CoinGecko. EOS, remember, is Block.One’s reason for existing.

Block.One, Rewarded

Block.One said in May that the exchange would use “EOSIO and the EOS Public Blockchain to produce a cryptographically validated, provable, and immutable audit trail of all transactions processed on the Bullish platform.”

This has led to some confusion that Bullish will be a decentralized exchange, or DEX – a category that has seen explosive growth over the last year. But Bullish would be just as centralized as Coinbase, with the slight addition of writing receipts to EOS. That could have some transparency benefits, but doesn’t make the exchange meaningfully decentralized.

But the architecture does hint at a possible secondary motivation behind Bullish: Whether it turns out to be a successful exchange or not, Bullish’s use of EOS for recordkeeping will make EOS seem more successful, or at least promising, by creating on-chain transaction volume as well as fees and other revenue. Block.One currently holds just under 6% of all EOS, worth roughly $250 million, according to EOS Authority.

(Transaction costs on EOS are quite a tangle. Some transactions are nominally free, but costs are arguably just moved around into staking requirements and RAM fees for onboarding dapp users. Last year Block.One introduced a pay-as-you-go fee option.)

Those fees and costs would ultimately be paid by Bullish users – to the benefit of Block.one. In other words, Block.One is creating a spin-off that will in essence be its own long-term customer, for a service of unclear utility.

The MicroStrategy Theory

Another compelling angle on Bullish came Friday from Sam Bankman-Fried, FTX co-founder, who in a Twitter thread focused on the $6 billion in crypto reserves that Block.One and other investors have injected into Bullish. Those reserves amount to about two-thirds of the proposed value of the Bullish SPAC.

That led SBF to speculate that, rather than a competitor to Coinbase or Bakkt, “Maybe Bullish is really another MicroStrategy.” In other words, maybe the real investment here is not in any innovation Block.One and Peter Thiel might bring to crypto exchanges, but in Bullish’s crypto reserves. The public listing will, like MicroStrategy stock, be investable by some entities that can’t directly buy crypto, such as (in theory) institutions. As the Grayscale Bitcoin Trust has shown , some investors are willing to pay a premium for these crypto-equity workarounds, though the near 50% markup on Bullish’s holdings might be a bit steep. (Grayscale is a CoinDesk sister company.)

Another key distinction is that while MicroStrategy has been laser-focused on bitcoin, the reserves behind Bullish will be much more of a mixed bag. The $10 billion supplied by Block.One to stand up Bullish in May (which has since declined in value) was over 90% bitcoin, but also included 20 million EOS tokens, or about 2.5% of the total. (It’s unclear whether these funds have already been moved from Block.One’s EOS wallets). As an exchange, Bullish would also wind up holding an assortment of other coins.