Is the E Guardian standing up again? How long can the current upward momentum of Ethereum last?

Source: Talking Outside the Lines

At the beginning of this month (July), some friends were still asking me: Is there still hope for ETH to break 3500 this year? As a result, less than two weeks later, we have already seen Ethereum at 3600 USD.

Looking back at the past two years of the bull market, the process has actually been quite torturous for many ETH holders. They not only had to face the price that could not break through the historical high of ETH, but also had to deal with the impact of FUD from people.

To be honest, the breakthrough rise of Ethereum in the past two weeks has surprised me a bit because, according to my original expectations (guesses), it might take until the end of the third quarter or the fourth quarter to see some new opportunities. However, the current result is still a very good thing for me (in terms of my position), and I am happy to see ETH rise unexpectedly.

In the past few days, I have noticed that the mood in some groups seems to have improved compared to before, and many E-guardians seem to be excited again. But at the same time, a new question arises: What is driving the current rise of ETH? How long can this upward momentum last?

When the price rises, people like to find reasons to convince themselves, and when it falls, they also like to find reasons to convince themselves. This seems to be a norm for many. Some bloggers also like to catch such trends; for example, when the price falls, they turn bearish, and when it rises, they turn bullish, as this aligns well with people's reading preferences.

However, summarizing reasons after each rise feels a bit like hindsight. Here, let's discuss it in two parts:

First, let's briefly review the views we have discussed about Ethereum since the beginning of the year, which also serves as a witness to the fluctuations in everyone's emotions.

In the article on January 14, we discussed: From yesterday (January 13) until now, many friends have been more focused on FUD against Ethereum. Perhaps, ETH's performance so far has indeed disappointed many. However, for my part, I still remain optimistic about Ethereum. Not to mention, after all, ETH is currently the only cryptocurrency besides BTC that has passed the spot ETF. Perhaps we still need to maintain a bit of patience towards Ethereum.

In the article on January 21, we discussed: Recently, ETH has been criticized severely across the network. Today, I saw a friend in the group sharing a rather interesting chart comparing Ethereum with the A-share market, mocking its breakthrough of the 3300 mark. However, despite the mockery, we still maintain the view from our previous series of articles on Ethereum, that we continue to be optimistic about Ethereum's performance, and that 4000 USD is likely not the end of this round of the bull market for ETH.

In the article on February 1, we discussed: For a period, many people have continued to FUD Ethereum, and "Ethereum" seems to have become "Ethereum pit." You may not look at ETH, but institutions like WLFI and BlackRock are buying. You may think BTC is too expensive, but companies like MicroStrategy are buying. The development of things always goes through stages; we cannot only see the peak and ignore the mess that may appear afterward. For projects that hope for long-term development and stable operation, ETH still appears to be the best choice at present.

In the article on February 5, we discussed: The market is ruthless; it has no emotional color. Only people are influenced by emotional fluctuations. I remain optimistic because I still believe that cyclical patterns exist. I also believe that the market can only welcome a new rise after most people must incur losses. If you do not believe in this pattern, then choosing to exit at a time you deem appropriate is the best choice for you. Just like if Zhang San is always optimistic about ETH while Li Si is always pessimistic, then it's simple: Zhang San stays, Li Si exits, and each pays for their choice.

In the article on February 10, we discussed: In the past week, ETH's price seems to show no signs of recovery. When BTC rebounds, ETH continues to lie still; when BTC falls, ETH follows suit, and many people's patience is worn thin. As of the writing of this article, ETH's price is still hovering around 2600, which is about a 46% drop compared to the peak of the last bull market. Perhaps institutions are playing a bigger game, or perhaps they have long been preparing for a downturn (collapse). They will not lift the retail investors who like to "carve boats to seek swords" until they have accumulated enough chips (voice).

In the article on March 20, we discussed: Many people anchor to the price of 4,100 USD, so they think that the current 2,000 USD Ethereum is cheap. But if you anchor to the lowest 800 USD Ethereum in 2022, the conclusion might be completely different. Selling at a high is actually similar; if you anchor to the belief that Ethereum will eventually reach 10,000 USD, then holding 2,000 USD Ethereum or being stuck with 3,000 USD cost Ethereum, what is there to be pessimistic about?

In the article on April 24, we discussed: If I remember correctly, we haven't specifically talked about ETH for over a month because previously, any mention of ETH (saying we are optimistic about Ethereum) would generally receive angry comments, which is understandable. However, with changes in regulatory policies, a certain degree of recovery in DeFi, deep participation from traditional financial institutions, and the continuous construction of the Ethereum network and ecosystem… we believe that Ethereum still deserves attention and emphasis in the future.

In the article on June 10, we discussed: I remember in April, Ethereum dropped to around 1300 USD, and during that time, the criticism against Ethereum seemed unending. However, with a few big bullish candles in early May, ETH's price doubled in less than a month, and it seems that the criticism has decreased compared to before. Today (June 10), ETH's price has returned to around 2700 USD, and recent news regarding Ethereum seems to be continuously positive.

In the article on June 15, we discussed: If we simply look back at the past, we can find that whenever the market encounters some unexpected events, people are always swayed by panic. In contrast, some institutions and whales often take the opposite action during these black swan events. For example, in the previous article, we mentioned that BlackRock has accumulated about 220,000 ETH in just the past 30 days. On one hand, retail investors are handing over their chips due to various news, while on the other hand, some institutions or whales are continuously buying and accumulating in large quantities. Doesn't this seem interesting?

Secondly, let's continue to think about the previous question: What is driving the current rise of ETH? How long can this upward momentum last?

In terms of market price factors, a rigorous statement is that the price increase of ETH is driven by a surge in demand caused by multiple factors. However, this vague statement may not sound meaningful to many.

Therefore, we need to be more specific. Regarding the current rise, a more direct statement can be summarized as follows: institutional interest in ETH is skyrocketing because BTC's past performance has amazed many (institutions) but they missed out. Recently, with the passage of some cryptocurrency bills in the U.S., ETH, as the only cryptocurrency besides Bitcoin that has passed the ETF, seems to be gaining new attention.

For example, in terms of ETH ETF fund inflows/outflows, the daily inflow on July 16 set a historical record, reaching 727 million USD, as shown in the figure below.

Additionally, regarding the ETH balance on exchanges, on-chain data shows that the ETH balance on exchanges has sharply declined in the past 30 days, reaching a new low level. As shown in the figure below. The decrease in exchange supply is usually seen as a bullish signal because it theoretically means that the number of tokens available for sale is decreasing.

In short, as some institutions have started actively buying ETH recently, the phase of market demand has changed, which seems to be the main driving force behind ETH's rapid rise at this stage.

So, how long can this upward momentum of ETH last?

As mentioned above, prices are often determined by multiple factors. For Ethereum, it is currently the only project besides Bitcoin that has passed the ETF, the largest foundational ecosystem in crypto, still the king of altcoins, and the best choice chain for the current RWA narrative… all these are factors influencing ETH's price changes.

Here, let's exclude other price influencing factors and simply consider the situation of MicroStrategy (MSTR) regarding Bitcoin:

In terms of mimicking MicroStrategy's approach, the Nasdaq-listed company SharpLink Gaming has recently become one of the star institutions. Since they announced in May this year that they would use ETH as their primary financial reserve asset, their stock (SBET) has seen a maximum increase of over 25 times, rising from 3 USD to as high as 79 USD.

As of the writing of this article, SharpLink Gaming has accumulated ETH worth over 990 million USD (the institution purchased about 213 million USD worth of ETH just between July 7 and July 13), not including other TradFi investors who have bought ETH through the spot ETF. According to the institution, they do not plan to stop this behavior anytime soon and will continue to buy more ETH, as shown in the figure below.

It is foreseeable that as more institutions like SharpLink Gaming continue to buy ETH, this seems to continue to create more buying pressure.

As for whether institutions will encounter problems with this approach, what problems might arise, and when might they occur? We have previously discussed specific methods regarding MicroStrategy in earlier articles (such as the one on February 10 and February 28). Interested friends can search back to historical articles for reference.

In summary, it can be roughly stated in one sentence: as long as the stock trading price of companies like SharpLink Gaming can remain above the value of their ETH holdings, they can continue to play this strategy.

I cannot speak for the long term, but in the short to medium term, the strategies of MicroStrategy regarding Bitcoin and SharpLink Gaming regarding Ethereum are overall beneficial for the prices of BTC and ETH. This is because the highest-level play of prices is actually to form bubbles, and what a bull market needs most is more bubbles. MicroStrategy has accumulated over 71 billion USD in Bitcoin using this genius strategy, and we have witnessed Bitcoin prices continuously breaking historical highs. If no new black swan events occur in the macro environment, ETH and some altcoins are likely to continue to rise.

Of course, since it is a bubble, there will eventually be a day of rupture, and the process from bubble formation to final rupture is often accompanied by repeated scripts. It is not to say that if you buy today, you will get rich tomorrow. Just as Bitcoin has risen from 15,000 USD to 120,000 USD in this cycle, this upward process has not been smooth. Therefore, we also need to strictly follow our position management plan, just as we discussed in the previous article (July 15): a bull market is a great retreat.

Investment/speculation can be summarized as grasping the cycle of bubbles, that is: embrace the bubble, enjoy the bubble, stay away from the bubble, and continue to expect the formation of the next new bubble.

According to our previous articles, we expect that there may be another opportunity to enjoy a larger bubble before the end of this year. Before officially staying away from the bubble, we need to focus on the following two major aspects:

1) Macroeconomic Aspects

This year, we mainly focus on the Federal Reserve's interest rate cuts and changes in the U.S. Dollar Index (DXY), both of which will have a significant impact on risk assets.

According to current market expectations, the Federal Reserve may cut interest rates twice this year, and the timing of the rate cuts has become a key catalyst. If the Federal Reserve cuts rates in September, based on past experience, the market (smart money) usually starts to digest rate cut expectations 3-6 months in advance. Therefore, the rise since April seems to be within a reasonable range, and starting in July may also mean that some altcoins will re-enter an acceleration mode.

2) Regulatory and Institutional Aspects

In this regard, we mainly focus on two things: one is the legislation regarding cryptocurrencies/crypto markets, and the other is ETFs and institutional capital.

For example, we have mentioned the GENIUS Act in previous articles. Its passage will certainly promote the adoption of mainstream stablecoins in the long run. Not only will major institutions launch stablecoin-related businesses in the future, but more users (in USD) will also be able to participate more conveniently in DeFi and other services.

Additionally, regarding ETFs, with the passage of spot ETFs for Bitcoin and Ethereum, the routes for other leading altcoin ETFs seem to have become increasingly clear. Based on past situations, the fourth quarter of this year (around October) may become a historical turning point for crypto ETFs. As we mentioned in previous articles, more altcoin ETFs may be approved by then, which will inevitably bring more external liquidity.

Although this round of the crypto bull market has followed some historical patterns and cyclical rules so far, there have also been many structural changes, such as the different speculative attributes of retail investors, the different driving forces in the market (increasing deep participation from institutions), different liquidity risks (external liquidity brought by ETFs), and different sustainability of narratives (more narratives and shorter sector rotations)… etc.

In the past, it seemed that getting rich in the crypto field was a simple matter; sometimes you could make money even with your eyes closed. Now, it feels like making money is becoming increasingly difficult. We not only need to study various changes in the crypto field itself but also need to pay attention to changes in the macroeconomic, political, and U.S. stock market.

Although many crypto indicators still hold reference significance and value, we also need to start changing some existing concepts. For example, regarding the issue of "altcoin season," many people often regard BTC.D (Bitcoin dominance) as an important reference indicator. However, we now need to understand that the decline of BTC.D is merely a result, not a cause.

In the future, the narratives of the crypto market will be driven more by institutional adoption, the development of stablecoins, and the process of tokenization (such as RWA)… and other external liquidity capital. This means that the demand in the crypto market is undergoing some essential changes. Especially for those who have always completely followed historical experiences, many of the so-called problems that seem apparent now may actually indicate that crypto is moving toward new maturity, and we need to recognize this early.

That's all for today. The images/data referenced in the text have been added to the Talking Outside the Lines Notion. The above content is just personal perspectives and analyses, intended for learning records and communication purposes, and does not constitute any investment advice.