Why does the author believe that the Ethereum spot ETF will promote the arrival of this round of altcoin season? The following is an in-depth analysis from the market and regulatory perspectives. This article is sourced from a publication by ChainOn, compiled by PANews.
(Previous summary:
Altcoin season may enter an “explosive growth” phase, analyst: focus on three technical indicators to judge
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(Background supplement:
Arthur Hayes’ latest investment prediction: BTC will fluctuate between 60,000 and 70,000 until August, has bought these three altcoins…
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Table of Contents
The value of Ethereum in the ecosystem
Will altcoin season come?
Predictions for the future
How to view the future development of the industry after the approval of the Ethereum ETF? First, let me state the conclusion: in my opinion, the market will usher in a longer period of “altcoin” season during the bull market, but the process will not be so smooth.
Why? Let me explain based on my personal observations:
1) The market reaction after the approval of the Bitcoin ETF was not as huge as expected. The anticipated frenzy did not occur as scheduled, but the volatility of Bitcoin has decreased, and the market’s capacity to absorb it has increased. The mysterious power of Wall Street behind it has become the “bottom support” that stabilizes Bitcoin.
Because Bitcoin is a pure asset and lacks a complete ecosystem support, the expectations of the secondary market for Bitcoin and the primary market that everyone is building seem to be disconnected. In the short term, the “gains” effect of Bitcoin on the market cannot extend to the primary price investment market, especially for the mainstream Lego ecosystem market of Ethereum, the correlation is even weaker.
Further reading:
Analysis: 5 reasons why the altcoin boom has not occurred, how to optimize investment strategies?
However, the approval of the Ethereum ETF is different. On the one hand, the deflation of ETH directly affects the activity of the primary market. The price increase of Ethereum will highlight the advantages of layer2 with low gas fees and indirectly drive the development of the layer2 market. The reduction in the circulation of Ethereum will intensify the competition of restaking and AVS and drive value growth. Ethereum held by incremental funds will be used to invest in and support top DeFi projects that are compliant, and so on.
If this example seems far-fetched, just understand that the value of Ethereum today is gradually generated by this huge primary market. Conversely, the price and circulation of ETH itself will bring continuous users, funds, and talent resources to the industry ecosystem. This is the fundamental reason why the Ethereum ETF will more likely promote the arrival of the “altcoin” season.
2) When I mention “altcoins” here, I am referring more to some “mainstream coins” that have VC support, team building, and were not highly valued by the market before the token was issued but experienced a price collapse after the token was issued.
In simple terms, the approval of the Ethereum ETF can attract mainstream funds to enter the huge ecosystem built on Ethereum, driving the continuous growth of value coins. (This can break the curse that value coins are not as popular as meme coins.)
Further reading:
Why hasn’t the altcoin season arrived despite the rush of meme coins? Why don’t retail investors and institutions interact?
However, ideals are beautiful, but it is not easy to attract mainstream funds to enter the ecosystem and drive the entrepreneurial ecosystem of Web3. The passage of the FIT21 Act (21st Century Financial Innovation and Technology Act) approved by U.S. congressmen contains a lot of information. The Act explicitly states that it will provide key consumer protection and promote innovation in the U.S. digital asset ecosystem. A brief interpretation:
1. The CFTC (U.S. Commodity Futures Trading Commission) has greater regulatory power, and digital virtual assets will be more flexible and free under the “commodity” attribute. This is the foundation for long-term stability and fewer variables in the policy end;
2. “Compliance” will become the main theme of the development of the crypto digital ecosystem, including the construction of institutional systems for the issuance process and standard specifications. This means that the digital asset 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 ETF gains. Those that do not comply with regulations will face greater sanctions and crackdowns and will gradually become a niche market (e.g., Tornado). Remember, in the surge of institutional entry in 2021, we defined it as the year of compliance. However, the unexpected incidents of FTX and Luna events have delayed this wish. The approval of the ETF will ultimately have to face the “compliance” issue.
3. The U.S. government or financial tycoons will strongly “intervene” in key areas such as stablecoins, exchanges, digital asset custody institutions, and payment platforms. The probability of directly making stablecoins illegal in the short term is low, but it cannot be ruled out that they will indirectly control the market through methods such as issuing licenses.
Further reading:
Interpreting the U.S. “FIT21 Cryptocurrency Act”: The impact on the next 10 years in the Web3 world
3) If the above speculations come true, we can foresee the following:
In the short term, the crypto secondary market will be divided into two levels. Some behind-the-scenes institutions will intensively speculate before a series of regulatory bills are introduced, and meme coins and some mainstream coins will have high volatility, while altcoins will flourish;
In the medium term, top DeFi projects, stablecoins, and exchanges that are more compliant-oriented will increase their compliance efforts. Value targets with good compliance orientation will have good market performance, while those without compliance will gradually lose value support;
In the long term, the political color of crypto will drive the market to cater slightly to the taste preferences of the Web2 market. This may disappoint some adherents of highly decentralized fundamentalism, but they can expect positive policies. Being rubbed against the ground by policies is a double-edged sword.
Web3 natives are not using the banner of decentralization to engage in fraud and money laundering. Under the big stick of compliance, the community will be divided, and product-level development is the trend. Some complex technologies and protocols in crypto are difficult to control by regulations, but the market will only follow the most mainstream development path. (The choice is actually in the market.)
In summary, the crypto market driven by politics will no longer maintain the pure “decentralization” dream, but it can eliminate the disorderly development of the crypto market over the years and allow mainstream value coins to shine.
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