Underperforming BTC in the first half of the year, what kind of "danger" and "opportunity" will ETH usher in in the second half of the year?

Original article: “Why did BTC perform better than ETH in the first half of the year?” What kind of “danger” and “opportunity” will Ethereum face?

Author: BitpushNews Asher Zhang

As of July 4, 2023, since this year, ETH has accumulated a cumulative increase of 63%, and BTC has accumulated an increase of about 87.1%. After switching to the PoS mechanism, Ethereum’s performance is slightly weaker than that of BTC, which is different from many people’s expectations at the beginning of the year. Why? After the US SEC has imposed strict supervision on the encryption market, the market is undergoing some subtle changes. PoS tokens seem to be facing a crisis. How will this affect Ethereum? As the leader of blockchain 2.0, what “dangers” and “opportunities” does Ethereum face after Shanghai’s upgrade? How will the future market of Ethereum develop?

After the upgrade in Shanghai, has Ethereum suffered selling pressure?

After the upgrade of Ethereum Shanghai, ETH is open for withdrawal. Does this create selling pressure on Ethereum? According to Oklink data: As of June 29, the pledge rate of Ethereum is currently 21.15%. From the trend point of view, the overall pledge rate of Ethereum is showing an upward trend after completing the upgrade in Shanghai. This means that after the extraction of Ethereum was opened, the new pledged amount of ETH exceeded the withdrawal amount, which not only did not form selling pressure on Ethereum, but further reduced the circulation rate of ETH, which will benefit Ethereum in the long run in the future.

In addition, after the implementation of EIP-1599, according to Oklink data, as of July 4, 2023, the cumulative destruction of Ethereum reached 3429221.74, which will further promote the deflation of Ethereum. It is worth noting that the destruction mechanism of Ethereum may seem to have relatively limited promotion of the market during the bear market, but in the bull market or a new prosperity in the ecology (similar to “DeFi Summer”), the price performance of Ethereum is expected to become particularly strong. Strong, the cumulative destruction effect of Ethereum will be further highlighted.

The regulatory attitude of the US SEC has changed drastically. Will the ETH converted to the PoS mechanism be affected?

The recent encryption market is mainly influenced by the supervision of the US SEC. Although the SEC did not sue Ethereum this time, has the SEC really given up the supervision of Ethereum?

After Ethereum switched from the PoW mechanism to the PoS mechanism, the regulatory attitude of the US SEC has changed significantly. On June 14, 2018, former U.S. Securities and Exchange Commission (SEC) Director of Corporate Finance Hinman said in his speech: "Aside from the fundraising that accompanied the birth of Ethereum, according to my understanding of Ethereum, the Ethereum network and its decentralized According to the understanding of the status quo of the modernized structure, the current quotation and sale of Ethereum do not constitute a securities transaction”, and he believes that the original assets of the Ethereum network do not need to be regulated as securities. In response to Hinman’s speech, Laura Jarsulic, an attorney for the SEC’s Office of General Counsel, said in an email on June 12: "Have reservations about including a statement about Ether directly in the speech … because it will make the agency It becomes difficult to take a different stance on ETH in the future.” Both Redfearn and the Office of General Counsel argued that Hinman skipped the threshold question of whether the SEC has jurisdiction, warning that by creating this “other” category and focusing on information asymmetries, Hinman A regulatory loophole would be exposed that the SEC may not have the power to close.

If the attitude of the SEC was relatively vague before, then the attitude of the US SEC this year is very clear. According to the “Bittweet” report, in February 2023, SEC Chairman Gary Gensler made it clear in an interview with “New York Magazine”: “Everything except Bitcoin is a security.” Although the SEC did not sue ETH as a security this time, it is not impossible in the future. At present, the main reasons why the SEC has not taken action may be as follows: First, the SEC has not reached a consensus with the CFTC. The CFTC actually believes that ETH is a commodity, and the dispute over regulatory rights is still inconclusive. Second, the difficulty of the US SEC suing Ethereum Relatively large, in addition to factors such as the wide audience of Ethereum, the prosecution of Ethereum will almost trigger criticism from the entire encryption world. At present, the SEC is expected to have no time to deal with it, and it will probably be the first to resolve the cases of Binance and Coinbase; Getting started may even lead to the eastward shift of the most important innovative force in the encryption industry. Currently, cities such as Hong Kong and Singapore are actively undertaking businesses such as encryption exchanges.

On the whole, the short-term regulatory crisis of Ethereum is relatively limited, but in the long run it is not without. As far as the recent performance of the encryption market is concerned, PoS tokens are greatly affected by the SEC as a whole, and many mainstream encrypted assets have plummeted. This means that SEC supervision has hit investors to a certain extent. confidence. In contrast, PoW tokens are once again popular in the market. After all, their probability of being considered securities is much lower, especially a group of PoW tokens that are more closely related to Bitcoin. Previously, according to “Bittweet” reports, EDX Markets, supported by Citadel and Fidelity, has officially announced the launch of its digital asset market, which will provide trading services for four cryptocurrencies including BTC, ETH, LTC and BCH. The smart money in the market seems to have smelled the hype opportunity. The discussion rate of BCH on social media hit a new high in three years, and its transaction volume hit a new high this year. In addition, a group of old POW public chain tokens such as BCH fork project eCash (formerly known as BCHA), Bitcoin SV (BSV, Litecoin (LTC), DASH and Ethereum Classic (ETC) have relatively high growth rates. Under the overall market environment of stock game, market speculative funds seem to have a tendency to transfer from PoS assets to PoW assets.

After the “opportunity” is “dangerous”, the upgrade of Dencun will promote the ecological explosion of Ethereum

In the short term, although US SEC regulation will have some adverse effects on the encryption ecosystem, if we look back at the development history of the encryption industry, we will understand that this will only make the industry stronger. Historically, Bitcoin has been referred to as a “scam” by regulators in various countries and has been “killed” hundreds of times, but now Bitcoin has not only integrated into the traditional financial industry, but has also become the legal currency of many countries; Ethereum is still very young At present, it is likely that it is just repeating the path that Bitcoin has traveled. In the future, supervision may only be a temporary obstacle in the face of Ethereum’s powerful technological innovation.

Let’s turn our perspective back to Ethereum itself. The next important technical upgrade of the Ethereum network—Dencun upgrade, is likely to push Ethereum into the next great period of prosperity. The Ethereum Dencun upgrade mainly includes five EIPs (Ethereum Improvement Proposals), which aim to increase data storage capacity and reduce fees, and the core improvement is EIP-4844. The largest unit cost of Layer 2 transactions is “Call Data”, which currently accounts for more than 80% of L2 transaction costs. EIP-4844 will effectively solve this problem. In the first half of the year, Layer 2 leaders Arbitrum One and Optimism have achieved great success and formed great competition for Layer 1. In the future, with the launch of zkSync, StarkNet and other tokens, the upgrade of Ethereum Dencun will be completed, and the shares of other Layer 1 public chains will most likely be further divided.

In addition, the Layer2 ecology is building a super chain ecology one after another, the purpose of which is to unify the Layer2 network to build a Rollup chain factory, which will break the island effect of Layer2. Subsequently, concepts such as Layer3 have also begun to be proposed. The huge building based on the “foundation” of Ethereum seems to be breaking through layers of obstacles and leading the Web3 world to embrace Web2. February 23, 2023 , Coinbase announced the launch of the testnet of the Ethereum Layer 2 network Base based on the OP Stack; on June 19, BNB Chain announced the launch of the opBNB testnet, which is an Ethereum Virtual Machine (EVM) compatible network based on the Optimism OP Stack. L2 scalability solution. These two encryption giants participated in the construction of the Layer2 super chain, which made everything not just stay on the idea.

Technological innovation means that huge application innovations may emerge. Cheaper and more efficient transactions will directly contribute to the development of DeFi, NFT, and Metaverse; it will also help promote cooperation and innovation between different industries, including supply chains, Internet of things, energy and other fields. Once the ecological application explodes, under the combined effect of the Ethereum pledge mechanism and the destruction mechanism, ETH will most likely start to truly “lead the way”.

Why is ETH not performing as well as BTC this year?

According to the “Comparative Tweet” market, as of July 4, 2023, since the beginning of this year, the cumulative increase of ETH is 63%, and the cumulative increase of BTC is about 87.1%. Although we are still very optimistic about the future performance of Ethereum, we have to say that the performance of ETH in the first half of the year is still much weaker than that of Bitcoin, which is not what many people expected at the beginning of the year. What is the reason behind this?

This article believes that the main reason behind this is: in the first half of the year, a series of innovative applications appeared in the Bitcoin ecosystem, while the Ethereum ecosystem was actually lackluster in comparison. At the beginning of this year, two innovative applications appeared in the Bitcoin ecosystem, which became the core force driving the rise of Bitcoin. A Bitcoin NFT protocol called Ordinals promoted the explosion of Bitcoin’s native NFT in a short period of time; subsequently, it attracted a group of Ethereum NFT protocols to migrate to the Bitcoin network, the creator of the strongest IP in the NFT field Yuga Labs also launched the NFT series TwelveFold on the Bitcoin blockchain based on the Ordinal protocol.

The other is the Nostr protocol. On February 1, 2023, Twitter founder Jack Dorsey announced the launch of the Nostr-based application Damus. Users can post content, send messages privately, and make lightning network payments in Damus Square. As of February 5, 2023, the number of public keys has reached 500,000+; in addition, Nostr’s ecology also includes the communication tool Anigma, the text sharing tool Sendtr, the online chess game Jeste, etc.

Then on March 8, 2023, the encryption community user @domodat drew on the Ethereum ERC-20 token standard and created a standard for testing homogeneous tokens on Bitcoin with the help of the inscription function. And transfer three functions, but it brought fire Meme tokens, and even made the Bitcoin network congested. Since then, agreements such as BRC-21 have also been proposed one after another. Coupled with the support of Bitcoin Layer 2 ecological construction, DeFi and other applications have also begun to appear in large numbers in the Bitcoin ecosystem.

In contrast to the Ethereum network, although the Shanghai upgrade is very important, its core is to allow ETH to be withdrawn relatively freely. Although it has brought fire to the pledge track, it cannot be regarded as a breakthrough in core technology in essence. The congestion problem that restricts the development of Ethereum is not in essence. If it is not resolved, it will be difficult to transform technology into productivity, thereby promoting the breakthrough and explosion of ecological applications, and it will be difficult to increase the intrinsic value of Ethereum, which will be reflected in the performance of BTC in terms of price.

As we said above, the Dencun upgrade is essentially an important upgrade capable of converting technology into productivity. Judging from the timetable, the core developers of Ethereum expect that the Dencun upgrade will be launched at the end of 2023, and next year Bitcoin will be halved in April and May, and the market sentiment will gradually pick up. There is a high probability that Dencun will strengthen some time before the upgrade at the end of the year, and a good round of market will usher in the stimulation of the Layer 2 track explosion.