How to view the industry development situation after the approval of Ethereum ETF? First of all, in my opinion, the market will enter a longer period of “altcoin season” during the ongoing bull run, but the process may not be as smooth as expected. Why? Let me explain my personal observations:
1) The market reaction after the approval of Bitcoin ETF did not meet the grand expectations. The anticipated frenzy and crazy bull market did not materialize. However, the volatility of Bitcoin has decreased, and the market’s ability to absorb it has increased. The mysterious power of Wall Street behind it has become a “bottom support” for the stability of Bitcoin.
Because Bitcoin is purely an asset, it lacks a complete ecosystem support. The secondary market expectation of Bitcoin seems to be disconnected from the primary market that everyone is building. In the short term, the “benefit” effect of Bitcoin on the market cannot extend to the primary investment market, especially the mainstream Ethereum Lego ecosystem market, which has even weaker correlation.
However, the approval of Ethereum ETF is very different. On the one hand, the deflationary nature of ETH will directly affect the activity of the primary market. The price growth of Ethereum will highlight the advantage of low gas fees in layer2 and indirectly drive the development of the layer2 market. The reduced circulation of Ethereum will intensify the competition in the restaking and AVS staking race, leading to value growth. Ethereum will be held by incremental funds and used to invest in and support compliant top DeFi projects, and so on.
If you think this example is far-fetched, just understand that the value of Ethereum today is gradually nurtured by this huge primary market behind it. Conversely, the price and circulation of ETH will continuously bring users, funds, and talent resources to the industry ecology. This is the fundamental reason why Ethereum ETF will relatively promote the arrival of the “altcoin season”.
2) When I mention “altcoins” here, I am referring to some “mainstream coins” that have VC support and have teams building them, but did not receive much attention before the token was issued, and after the token was issued, the price did not receive support. In simple terms, the approval of Ethereum ETF can attract mainstream funds to enter the huge ecosystem built on Ethereum, driving the continuous growth of value coins. It breaks the curse that value coins are not as popular as meme coins.
However, ideals are beautiful, and it is not easy to attract mainstream funds to enter the ecosystem and drive the entrepreneurial ecosystem of web3. The passage of the U.S. House of Representatives’ “Financial Innovation and Technology Act of the 21st Century,” also known as FIT21, contains significant information. This bill explicitly proposes to provide key consumer protection and promote innovation in the U.S. digital asset ecosystem. Let’s briefly interpret it:
1) The U.S. Commodity Futures Trading Commission (CFTC) has greater regulatory power, and the regulation of digital virtual assets under the “commodity” category will be more flexible and free. This is the basis for long-term “stability” in the policy field.
2) “Compliance” will become the main theme of the development of the crypto ecosystem, including the construction of institutional systems such as the issuance process and standard specifications for asset issuance. This means that the crypto ecosystem will be divided into two extremes: those that comply with regulations will gradually find solutions to key issues such as KYC and anti-money laundering and will directly benefit from ETFs, while those that do not comply with regulations will face increased sanctions and crackdowns, gradually becoming a niche market (such as Tornado). Remember, in the wave of institutional entry in 2021, we defined it as the year of compliance. However, the unexpected events of FTX and Luna have delayed this wish. The approval of ETF will ultimately have to face the “compliance” issue.
3) The U.S. government or financial conglomerates will “intervene” in key areas such as stablecoins, exchanges, digital asset custody institutions, and payment platforms. The probability of directly creating stablecoins through laws in the short term is low, but it is not ruled out that they will indirectly control the market through methods such as issuing licenses.
If the above speculations are true, we can foresee the following:
In the short term, the crypto secondary market will be divided into two levels. Some behind-the-scenes manipulators will intensify speculation before a series of regulatory bills are introduced, and meme coins and some mainstream coins will experience high volatility, while altcoins will surge.
In the medium term, some top DeFi projects, stablecoins, and exchanges will increase their compliance efforts. Value targets that comply with regulations will have good market performance, while those that do not comply will face the opposite situation and gradually lose value support.
In the long term, the political influence of crypto will gradually cater to the taste preferences of the web2 market. This may disappoint some adherents of highly decentralized fundamentalism, but they can expect policy-driven benefits. Being rubbed against the ground by policies is a double-edged sword.
Web3 natives are not umbrella terms for fraud and money laundering in the name of decentralization. Under the big stick of compliance, the community will be divided, and product stratification is the trend. Some complex technologies and protocols in the crypto space are difficult to be influenced by regulations, but the market will only follow the most mainstream development path. (The choice is actually in the market.)
In conclusion, it may be the last carnival of speculators, or the pressure from regulatory swords, or the loss of speculative crowds after high volatility is constrained, and so on. Everyone has their own vision for the development of crypto. Generally speaking, the crypto market driven by politics will no longer maintain the original pure “decentralization” dream, but it can eliminate the disorderly development of the crypto market over the years and allow mainstream value coins to shine.
Tags:
DeFi
ETF
Ethereum
Compliance
Market
Bitcoin
