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00:00:01
Why You're Not Bullish Enough
176 Plays5 months ago
In this week's episode, we dig into the major catalysts that are coming to the crypto markets in the coming few months, and the reasons why you should be bullish. We dig into the implications of the spot Ether ETF plus the recent FIT21 legislation.
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Transcript
Introduction and Missing Co-host
00:00:12
Speaker
Hello and welcome to the Decrypting Crypto Podcast. It's May 23rd, 2024 and this is Off Chain, your weekly recap of the biggest stories in the crypto space. I'm Matthew Housebarbie and I'm flying solo today. My ever reliable co-host Austin Knight is in fact not as reliable as I first thought. No, I still love you, Austin.
00:00:36
Speaker
He's got more important things than chatting to me on a podcast today, unfortunately.
Ethereum Spot ETF Anticipation
00:00:41
Speaker
I do not. And the reason why is because there are some really important things to be talking about today. We are eagerly awaiting some potentially very good news when it comes to the Ethereum spot ETF, which we'll talk a little bit about. I'm sure your timelines are full of information around that. So I'm not gonna go too crazy detail, but we'll talk a little bit more about
00:01:06
Speaker
Basically why I don't think anyone is bullish enough right now on the medium to long term of crypto.
Grayscale Ethereum Trust Discount Narrows
00:01:18
Speaker
I want to call out before we start digging into some of the rationale and discussion that I have around this, the ETH E trade that we talked previously about. That is the Grayscale Ethereum Trust. You may remember a few weeks back I talked a little bit about this trade where it was operating at
00:01:39
Speaker
around about a 24% discount to the net asset value which effectively means you could buy shares in the ETH E Trust where they would be priced at a 24% discount to the spot price of ETH.
00:01:57
Speaker
Well, that discount has all of a sudden tightened right up, and the gap has closed from 24% to 6%. So if you follow that trade, you have already made a really, really nice profit. And I think that probably tightens into within a 3% to 4% range if the Ethereum spot ETF is approved in the next few hours, which we're expecting that to be the case.
00:02:25
Speaker
Congrats if you followed that advice as I mentioned at the time unfortunately as a UK citizen I cannot purchase ETHE but you know I get the the benefit of being an armchair trader in this one and hopefully a few of you made a few bucks on there so hit me up on Twitter if you if you did that's a good one. All right let's jump straight into it.
Are We Bullish Enough on Crypto?
00:02:55
Speaker
What I want to talk about today, because I'm sure there are many, many podcasts digging into all of the various happenings in the US, in the courts, and also on the desk of Gary Gensler when it comes to the Ethereum ETF, I wanted to put forward a case of why you are not bullish enough right now.
00:03:19
Speaker
And I think people are starting to get excited. There's some price action, especially on ETH. And this week has really picked up from a global trading volume perspective across all exchanges. And April, sorry, May, the first kind of three weeks really had been back to some of the lower points of the year, closer to where we were in the beginning of Feb.
00:03:45
Speaker
and end of January so it's good to start see that that picking back up again. A couple of reasons. The biggest one of course is this complete 180 that we've seen in the prospects of having the Ethereum spot ETF approved.
Implications of Ethereum ETF for Other Chains
00:04:05
Speaker
I think you'd be a very brave person to bet against this happening now. It seems like probably around about 4 p.m. Eastern, we're gonna see a notification from the SEC saying that minimum one of them has been approved, but probably all of them like we saw in the last spot ETF with Bitcoin.
00:04:30
Speaker
And this is a really big deal. We saw what happened in terms of inflows on the Bitcoin ETF. And I believe there's going to be a similar, albeit probably not the same appetite. I think a very big appetite still.
00:04:46
Speaker
to gain exposure to ETH as well. And more importantly, the fact that it has not been denied paves the way for other proof of state chains. I imagine this is me speculating that Solana is probably going to be next on the cards and there'll be a lot of speculation going up into that.
00:05:05
Speaker
And one of the things that I mentioned earlier in the year when we were doing our episode around the ETH ETF was something that could be really exciting would be a staked ETH ETF. It would seem that that is now completely off the table for this stage in the process.
00:05:25
Speaker
Pretty much all of the ETF issuers that are putting in their applications have revised out any staked ETH proposals in there. So that has been taken out of all of these. It seems like that was a hard, fast condition from the SEC to get this one through.
00:05:46
Speaker
Hopefully we are going to see that in the future because there is significant appetite for that as an ETF. So I think there's a future nice narrative play that could come in in that form.
00:06:02
Speaker
So we've got that
US House Passes FIT21 Bill's Impact
00:06:03
Speaker
piece. The other big thing that's happened that we saw happen yesterday was that the US House approved the FIT21 bill. And why is this important? Well, this is the first ever crypto bill to pass.
00:06:23
Speaker
the US House, and the vote went in a pretty strong majority, 279 to 136, with I think only three Republicans abstaining, I'm sorry, opposing, and 133 Democrats who voted against it. That said, 71 Dems did vote in favor of the bill. So why is this even news?
00:06:53
Speaker
Well, this bill is focused, and it was driven by largely by House Republicans, it is focused on establishing a framework to regulate the US crypto markets. So in its proposal, it would have the CFTC, which we already know has defined ETH and other cryptocurrencies similar to them as commodities, unlike the
00:07:22
Speaker
potential stands from the SEC. And it would establish the CFTC as the leading regulator of digital assets. They would be kind of like the watchdog of these kind of spot commodity markets. And I think they would be the ones that would define what would make a crypto token a security or a commodity. This would provide a huge amount of regulatory clarity. It's something that
00:07:47
Speaker
We have been talking about, I have been talking about, most people in the industry have been talking about where the US really needs this to come into play. It's stifling innovation in the space. It's causing huge issues for anyone trying to build and even to provide protection and have clarity in the ways that their product should be structured. It's really, really challenging, a huge stumbling block. It's a major milestone. Now,
Crypto's Role in US Elections
00:08:17
Speaker
You know, there's a lot that would have to happen though for this to actually kind of come into law, you know, this...
00:08:28
Speaker
this would receive a pretty significant amount of opposition in the Senate, which it would have to pass from Senate Democrats. And I think that it's unlikely to become law in Congress. However, lots of things could change. I think one of the key things here is that what is happening, which I'll be completely honest, I was not expecting, is that
00:08:57
Speaker
crypto has become a very political issue in the US election. We've seen that Donald Trump has been very talkative around crypto all of a sudden.
00:09:17
Speaker
has clearly made it one of the parts of his campaign that he's leaning into to put pressure on the Democrats that have been largely against an anti-crypto. Biden himself opposed fit 21, but most notably did not use a veto, which is important. It may just be a little bit of posturing here, but
00:09:43
Speaker
We'll see. But what Trump is doing, you know, he's accepting campaign donations in crypto. He said he wants to build a crypto army, which I think is a nod to Elizabeth Warren's empty crypto army statements previously. And it's forcing discussion in the election around the Democrats to soften their take. And I think
00:10:12
Speaker
from the news coverage that we've had and the insights that we have so far, that this is one of the key factors that has created this real turnaround in the Ethereum spot ETF story.
00:10:30
Speaker
Do I believe that Donald Trump truly cares about the future of crypto and is an advocate for crypto and an ally for the space?
00:10:43
Speaker
No, not necessarily. Do I think this is being used as a tool in the current election? Most likely. Is there some benefits here in creating a discussion around this and bringing this to the forefront of discussion? Absolutely.
00:11:04
Speaker
And I think what everyone wants is clarity. We're getting this in areas in Europe and other areas across the world where regulation is
Catalysts for Crypto Market Growth
00:11:14
Speaker
coming in. We have the Mika licensing coming in and framework coming in, the start of next year into Europe, which should provide at least more clarity.
00:11:24
Speaker
And hopefully what, you know, fit 21 is paving the way towards whether it's fit 21 or another bill that eventually kind of passes through is getting us to a better state of regulatory clarity. So why should you be bullish?
00:11:41
Speaker
there is a huge sentiment shift on the political level. There is an enormous liquidity catalyst outside of just Bitcoin, right, in the form of ETH. And we're seeing that in the short-term price action. We're seeing that ETH BTC is closing in. Both BTC and ETH have been rallying since late Monday when we first kind of had the news that was broke by the analysts at Bloomberg that there may be a complete 180 in the Ethereum spot ETF decision.
00:12:12
Speaker
Bitcoin rallied, ETH rallied, basically everything rallied. I mean, ETH went from what was it around 2900 up to 3800 where I'm recording right now. Bitcoin actually in the past hour or so has dropped down from around 69 and a bit 70K down to 68, 67.7K actually right now.
00:12:36
Speaker
And that is clearly flowing into ETH as ETH BTC pairs are trending upwards in favor of ETH. So you can kind of start to see the ETH narrative taking off and Ethereum-based meme coins, the likes of Pepe and others are also rallying on the news. Less so the Solana meme coins right now, but
00:13:04
Speaker
You know, everyone is really excited about this, myself included. I've been talking about this as a major catalyst for probably the best part of a year now, and here we are. And what we are going to see is the first step in the approval process for ETH, hopefully happening in the next few hours.
00:13:24
Speaker
And then we have the S ones that are approved that might happen all in one kind of all in one process. That's kind of what happened with BTC. And then we saw the Bitcoin spot ETFs get listed immediately.
00:13:39
Speaker
it's less likely that will happen. I think what might happen here, this is what some of the various analysts have been projecting and I would probably agree with this take is that we get the first part of the approval happening today and then maybe in the next say two to four weeks we see the first ETFs go live and then we can expect you know similar story I think if
00:14:09
Speaker
Grayscale keeps that ETF fees high like they did for the Bitcoin trust and keep like 150 bits as their fee.
00:14:21
Speaker
they're gonna see massive outflows and that gets cycled into the likes of the Fidelity and BlackRock, et cetera. So either way, I think it's gonna be really, a lot of institutional interests and I would not be surprised to see ETH rally pretty hard over the next couple of months. Now, will we see some sideways action? Absolutely. But I think the reason why we should be particularly bullish despite that is
00:14:50
Speaker
There are a lot of additional catalysts that are coming to the fore that can keep momentum moving forward. The first, of course, is rate reductions. We, barring any like real upside surprise to inflation, I think a hyperbull case for rate reductions would be July.
00:15:15
Speaker
Maybe we see that a little like a few months after that I think July is a bull case barring anything to the downside happening on inflation That would certainly certainly drive that and I think the feds narrative is gearing a lot more now towards Goods inflation and we're seeing a little twist around so I think we'll see something there certainly in Europe We'll see the ECB almost certainly Reducing rates in July the Bank of England we thought might happen
00:15:45
Speaker
In June, it seems like that is no longer going to be the case. We also now have a general election happening in the UK in the next month, which I didn't think anyone was expecting. So I think Rishi standing outside in the rain is going to be on the sidelines after that.
00:16:06
Speaker
But that may bring in in probably July time if the ECB are going to be reducing rates. We see that happen in the Bank of England as well. And I think this starts us in a path where I know that the bear case is we don't see any rate reductions until Q4. I still don't think that matters. But why is that a catalyst?
00:16:28
Speaker
Well, what's going to happen there is investors are going to rotate out of bonds and back into risk assets. Equities and crypto will do very well off the back of this. And I think something that you want to keep a close eye on is the total stablecoin market cap.
00:16:47
Speaker
This is one of the clearest indicators of an upcoming rally in crypto, and it signals where more liquidity is coming into the market. In the bull run of 2021, we saw a steady increase in total stablecoin market cap from July, which was around about $105 billion, to the peak in April 2022 the next year, which was $187 billion.
00:17:17
Speaker
Right now we're at 160 billion and we have been slowly climbing from April. I mean we've been slowly climbing steadily climbing since October of last year but since April we've started to see things pick up the pace of climb roughly adding about 10 billion in the space of a month. I think we'll see that increase again in the next few weeks.
00:17:40
Speaker
And for context, pretty much the bottom since the peak in April 2022 happened in October of 2023. That was 123 billion. So I think we start to see this trend back up towards the $200 billion mark. And that really is when we start to see much more liquidity flowing into the space.
00:18:06
Speaker
The other thing that I think is kind of interesting here on the ETH ETF that we haven't really talked a little bit about before, I was really excited about a staked ETH ETF.
Increased Staking Rewards from ETH ETFs
00:18:16
Speaker
There are definite criticisms around that. Do we want centralization of our staked ETH into the likes of BlackRock and Co.? It will definitely increase centralization. At the same time, it brings in more liquidity, will drive more price action, et cetera, et cetera.
00:18:36
Speaker
On the other side of the argument, if the staked ETH ETF does not come through, what we are going to see with these ETH ETFs is huge amounts of ETH being acquired through the ETF issuers and held in custody
00:18:56
Speaker
without being staked, right? What that means is the proportion of ETH that is staked is actually going to reduce a pretty significant amount. As a result, the net rewards that validators will receive should in line increase. So we're gonna see increased staking rewards in ETH, I predict.
00:19:23
Speaker
We will also hopefully start to see supply crunch starting to happen alongside this. And all of this shapes up for the ETH ecosystem to really start going on a tear.
Impact of Upcoming Airdrop Season
00:19:38
Speaker
And then when you add into the mix that we're just about to enter the next stage of the major airdrop season, I think Q3 is going to be a monster for this. And we've got a few things happening. So we have the Eigenlayer kind of non-transferable token airdrop, but
00:19:54
Speaker
uh the end of september eigen will become transferable and that is effectively when the the air drops happening that's going to be um hundreds of millions of of dollars that are going to be air dropped to into people potentially
00:20:11
Speaker
A billion plus value is going to enter the space. We'll see a bunch of the other liquid restaking protocols also running their airdrops. We've seen already with the likes of Ethify, Renzo, the size of those.
00:20:27
Speaker
We have ZK Sync finally, finally coming in June and I imagine there is just going to be a flurry of airdrops happening between June and October of this year combined with that what I've certainly seen on the
00:20:45
Speaker
on the new project side where I have been either making investments or seeing some of the projects that are in development, a lot of those projects had been forecasting for their tokens to go live in Q3 and Q4. So I think there'll be a lot of hype mania as we enter Q4, especially
00:21:13
Speaker
if, and this is a pretty big bull case, we get two rate reductions. If we had a second rate reduction in December, inflation remains under control. I think we really start to see things taking off. And personally, this is pure opinion. I do think that the Ethereum ecosystem is the place where there's a lot of value to be had.
00:21:37
Speaker
And I think we start to see similar stuff happening in other proof of stake ecosystems, the likes of Solana, et cetera. And no doubt in any of these periods, we'll probably see memes have another big tear that comes back. But overall,
00:21:54
Speaker
Really, really bullish. I'm super excited. I think sentiment is coming back to being really, really high. We're going to have some good momentum here. Of course, if there's a complete curveball, and as we've pushed this out, the ETFs have been denied, then ignore everything that I have said and push that timeline out six to seven months.
00:22:17
Speaker
However, I feel pretty confident in the fact that this stuff is going to happen and in the next few hours we're all going to be feeling really excited about what's next. Alright, that's enough Hopium, that's enough ball posting for now and we'll dig in hopefully next week into what's next after the Ethereum ETF approvals. See you all then.
00:23:01
Speaker
The contents of the Decrypting Crypto podcast should not be used and are not intended as investment advice. Please do your own due diligence before making any investment, cryptocurrency or otherwise.