Why Ethereum Is Again at the Forefront of the Next Crypto Bull Run
EigenLayer is the main catalyst, but there are many more.
You are reading The Third Angle. The publication is mostly about crypto and economics, my areas of expertise, but could also be about many other things such as geopolitics, science, AI, and health: all areas I love as well.
The Third Angle is run by Juan Aranovich, an economist from Argentina, managing editor of Unchained, researcher at Ryze Labs, and crypto enthusiast.
Ethereum has consistently been at the forefront of crypto bull runs, driving the market with innovations that shape the industry. From ICOs to DeFi and NFTs, Ethereum has been the launchpad for some of the most transformative trends in crypto. Now, it's doing it again with restaking, and here's why I believe it's not just another trend, but the catalyst of the current bull market.
Restaking Explained and EigenLayer
Simply put, restaking in Ethereum allows holders to put their stake to work in multiple ways, amplifying the utility and value of their holdings. It's not just about earning passive income; it's about actively participating in the network's security and governance, while also supporting new and innovative protocols built on Ethereum.
EigenLayer is at the moment the main project enabling restaking.
This is EigenLayer’s Total Value Locked, which has gone from $250 million in December to $7.8 billion, a 16x increase.
Oh and by the way, they just announced a $100 million dollar investment led by a16z 👀
Now… Why Restaking is a Game-Changer
Multi-Layered Security and Innovation: Restaking transforms the way security is handled on the Ethereum network. By enabling users to restake their ETH, it provides a robust layer of security not just for Ethereum but also for the new protocols building on it. This increased security is a magnet for innovation, attracting developers and entrepreneurs who want to build on a stable and secure platform.
A New Model for Funding and Growth: Traditionally, new projects needed to attract venture capital or conduct token sales to secure funding, which can be a lengthy and complex process. Restaking disrupts this model. Projects can now leverage Ethereum's security, allowing them to focus on innovation rather than fundraising. This opens the doors to a flood of new ideas and applications, fueling the growth of the Ethereum ecosystem.
Direct Participation in the Growth of Technologies: Restaking offers something unique to Ethereum holders - a direct stake in the growth and success of emerging technologies. By restaking, you're not just holding a token; you're investing in the future of decentralized applications and services. This direct participation creates a powerful incentive for Ethereum holders, driving more investment and interest in the platform.
Creating a Self-Reinforcing Ecosystem: The more Ethereum is restaked, the more secure and attractive the network becomes. This encourages more developers to build on Ethereum, which in turn attracts more restakers. It's a virtuous cycle that fuels both the security of the network and the proliferation of new applications and services.
Enhancing Yield: The introduction of EigenLayer changes how services are validated on Ethereum, from the debut of EigenDA staking to the mainnet launch. The ripple effect? A surge in airdrops linked to actively validated services (AVS), bolstering the value proposition for ETH holders.
And, to get all these benefits, you must buy $ETH.
On top of restaking, there are many reasons why ETH is poised for significant growth:
1- Evolution of Layer 2 Solutions: Ethereum's ecosystem is expanding with Layer 2 solutions, including privacy-focused and zero-knowledge (ZK) Rollup solutions like Manta and zkSync, and comprehensive platforms such as Polygon zkEVM.
The layer 2 user base has grown significantly in the past year.
2- Core Ethereum Upgrades (EIP-4844): The EIP-4844 upgrade, aims to bring significant enhancements to Ethereum's infrastructure. This includes more cost-effective Layer 2 transactions and new revenue streams from data availability.
The rollout of EIP4844, likely in H1 2024, will provide rollups with a potentially 10x cheaper cost to use Ethereum as a Data Availability (DA) solution.
This means that using Ethereum L2s will get much cheaper. At the moment, even though costs are lower than in the L1, these costs are prohibitively high for many people in the developing world.
Moreover, the Ethereum roadmap is all about scaling without compromising decentralization and censorship resistance.
3- Impact of Regulatory Developments: Potential regulatory changes, such as the classification of ETH as a commodity, could significantly influence Ethereum's growth trajectory, enhancing market stability and investor confidence.
Moreover, the potential introduction of spot ETFs for Ethereum could facilitate institutional engagement in Ethereum trading, potentially increasing liquidity and interest in the ecosystem. The alpha play after the spot BTC ETF is to frontrun the ether one. (I wrote about Bitcoin ETFs the week before they were approved here.)
And what do we crypto people do? We frontrun everybody else. We are frontrunners by nature.
4- Influx of 'Dumb Retail Money': As Ethereum continues to experience price increases and gains more public attention, it's likely to attract a wave of retail investors, colloquially referred to as 'dumb retail money.' This influx is typically characterized by investors with limited knowledge of the cryptocurrency space, drawn in by the allure of quick profits amidst rising market trends. While this can lead to short-term price surges, it often results in increased market volatility and can create unsustainable price bubbles. For seasoned investors, this phase of heightened retail interest could signal an opportune moment to evaluate their positions. The influx of retail investors, particularly in a bull market, is often viewed as a late-stage event in market cycles, potentially indicating a nearing peak and signaling a time for caution among more strategic investors.
5- Influence of Macro-Economic and Political Factors
US Election Year Impact: The US election year carries potential implications for the crypto market, including Ethereum. Political developments during this period could lead to policy changes and regulatory shifts affecting Ethereum's market position. Election years often bring about a heightened focus on financial regulations and policies, which could directly influence the legal and operational landscape for cryptocurrencies.
Liquidity Cycle in Financial Markets: The broader liquidity cycle, driven by global economic policies and trends, is another significant factor for Ethereum. In periods of high liquidity, where capital is abundant and borrowing is cheaper, there tends to be an increased flow of investment into higher-risk assets, including cryptocurrencies like ETH. This cycle is influenced by central bank policies and global economic conditions, which can affect investor appetite for risk and subsequently impact investment in crypto markets. The Global Liquidity Cycle should next peak around September 2025, according to research by Michael Howell.
Impact of Interest Rate Cuts: Reductions in interest rates generally result in capital moving towards riskier investments in search of higher returns. In an environment of lower interest rates, cryptocurrencies, including Ethereum, may become more attractive to investors. This dynamic can lead to increased investment in ETH as investors seek to diversify their portfolios with higher-yield assets amidst a low-yield environment. Where are we in terms of interest rates?
This week the market priced out the 4th cut and now we're down to expecting a total of 3 cuts this year.
Conclusion: Positioning Ethereum at the Pinnacle of the Next Bull Run
In summary, Ethereum's innovative strides in restaking, spearheaded by EigenLayer, alongside significant advancements in Layer 2 solutions and core upgrades like EIP-4844, position it at the forefront of the upcoming crypto bull run. The potential introduction of spot ETFs, combined with the influx of retail investment and the broader macroeconomic environment shaped by the US election year, liquidity cycles, and interest rate dynamics, further bolsters Ethereum's potential for significant growth. The confluence of these factors undeniably places Ethereum in a prime position to capitalize on the next wave of technological and financial innovation.
Disclaimer: Not Financial Advice