The Ether spot ETF was approved very recently, in what looks like a 180 degree turn on crypto stance for the current US administration. Now, both Bitcoin and Ethereum have their long-awaited spot ETFs, which should make it vastly easier for US funds and savers to allocate capital to crypto, even if indirectly.
If there’s one constant of crypto markets so far, it is the 4 year cycle, which closely tracks Bitcoin emission halving events. Every four years, the cryptocurrency market goes through a complete cycle of massive hype, disillusionment, capitulation, and recovery. The halving itself coincides with the recovery phase, and the market peaks approximately one year and a half later.
This basic pattern has persisted since Bitcoin was first publicly traded, and though history never repeated exactly as before, it very often rhymed. Even despite the massive external market shocks given by the Covid crash and subsequent money printing-fueled rally that affected all markets, Bitcoin peaked exactly 18 months after its halving.
Without giving too much credit to superstition, the pattern seems to be on track so far. With the Bitcoin and Ethereum ETF giving massive impetus to crypto narratives, it seems quite likely that crypto markets will continue to grow. Amid this backdrop, it’s quite easy for the four year cycle to become a self-fulfilling prophecy.
As always, each cycle is slightly different. And while it’s impossible to predict the future, we can see now some ways how this cycle will differ from others.
Bitcoin and Ethereum are Kings
The crypto market was biased towards Bitcoin and Ethereum for a long time, and with the ETFs, it’s difficult to see this changing. What’s more, compared to four years ago, most technological developments of note are being built as Ethereum and Bitcoin Layer-2 solutions.
When four years ago future superstars like Avalanche, Solana and Luna were already getting started and noticed by the community, now the same is happening with Ethereum Layer-2 platforms like Base, Optimism, Blast and others.
Many more solutions are on the horizon as well, most notably on the Bitcoin L2 side, including Babylon, BOB, Merlin and several others. For Ethereum, the era of zero knowledge-based platforms is also approaching, including those based on Polygon, zkSync, Aztec and more.
In short, there are very few new Layer-1 chains that gained traction in the past 4 years. TON can be considered an exception, and Solana deserves an honorable mention as well for its impressive comeback. Once deemed the most unlikely to claw its way back after the FTX collapse, it is now well positioned to carve its place on the podium of crypto projects.
However, while the user activity on Solana is impressive, developer attention is much less significant, with the most popular projects often being Solana ports of popular Ethereum apps. For now, the road ahead of Solana is long, and given the extensive usability issues uncovered during the current memecoin mania, it’s likely that we will see some of its users flow back to Ethereum.
The previous cycle was likely the last possible chance for Bitcoin and Ethereum to lose momentum and be outcompeted by newer upstarts. Technology has now matured, and the most exciting projects and innovative protocols are largely tying themselves to Bitcoin, Ethereum or both.
Picking the winners of this cycle
Given the current situation, the right play seems to be going for Ethereum and Bitcoin-based projects who tie themselves to their price action. Since they’re smaller, they can usually offer much higher “beta” and thus higher potential returns than holding Bitcoin and Ethereum directly. Obviously, the higher potential also implies higher risks.
On the Ethereum side, there are many infrastructure projects that could perform the “higher beta” role. For example, EigenLayer and its ecosystem offer many different opportunities for all kinds of risk appetites. Lido offers a sturdier and simpler alternative, though as a $2B market capitalization project, it is also fairly large by now. Relatively new entries like SSV.network, a project pioneering Decentralized Validator Technology, can be fairly attractive here.
For Bitcoin, many of its newer L2 projects have yet to release tokens, though existing projects like RSK had seen some interest. The Ordinals-centric ecosystem also has some potential, though it is currently in somewhat of a downtrend. Overall, there will likely be many opportunities to leverage points systems for airdrops on these new platforms, as well as potential repeat growth on established assets.
An interesting bet on both Bitcoin and Ethereum is EOS, once the most famous “Ethereum-killer” in 2018. Under new community management, it has used its technology to implement an extremely fast EVM, which lets developers deploy Ethereum smart contracts on it.
More recently, it has made forays into Bitcoin as well, launching exSat, a “docking layer” for Bitcoin on EOS. It works by allocating RAM on EOS to Bitcoin data, including all kinds of block data from consensus to Ordinals NFTs. Effectively, it acts as a second layer for storing all Bitcoin data and retrieving it easily, scaling the platform right away. It plans to allocate up to 50% of its total RAM to exSat, so the intention to join the Bitcoin ecosystem seems quite serious.
It’s likely that in this cycle, each player in the right spot will have its moment to shine. There are still many unknowns — how long it will last, what will be the killer applications — but for sure, the tailwind for the next year and a half is picking up strength.