Empire Newsletter: How crypto could break its four-year cycle
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Break the cycle!
Are we about to buck the precedent of a volatile four-year cycle?
Framework Ventures co-founder Michael Anderson thinks so…if and when we get formal SEC approval for ETH ETFs.
But he noted that the market structure began to change after Grayscale’s court win last August (which also pushed the SEC to approve the spot bitcoin ETFs).
“In previous cycles, you had bitcoin as the primary asset that people would enter into the ecosystem with, and then they kind of move on to another thing, like Ethereum, or maybe, you know, one of the other kind of alt platforms,” Anderson said.
“DeFi summer brought everybody into Ethereum, and then they went further and further out the risk curve. But at each one of those moments, they would sell the primary or the initial asset to move to the next level, and then do it again, to move to the next level. But I think what we’re seeing now, with the inflows in these ETFs, is there’s no kind of ‘sell when you move from bitcoin to ether,’ bitcoin to something else, or ether to something else.”
With that in mind, ETF flows will “dampen volatility pretty drastically,” he added. That could be enough to break the market out of its current cyclical pattern because you don’t have “mass-selling” when folks run from one asset category to the next.
There are some things that remain unchanged this cycle. The dueling narratives from potential “Ethereum killers,” for example.
Last go around, it was Optimism and Arbitrum, Anderson said. Before that, it was Solana and Avalanche. The two emerging now aren’t necessarily ETH killers, but Berachain (which Framework has invested in) and Monad have caught Anderson’s eye this time.
“Fewer and fewer people will be transacting on ETH mainnet going forward, is the general perspective, whether it’s an L2, L3 or an ecosystem where it’s completely abstracted away,” Anderson said. “[And that’s] kind of the ideal state where we’re directionally heading.”
“Then, it’s not really about killing ETH. It’s more about adding more layers of abstraction above ETH, so you don’t even know that you’re touching it, would be the ultimate goal.”
With more L2s, prices could go back to deflationary. “We’re kind of in that transition period of the applications haven’t really hit scale yet, where we now have the cheap transaction prices to support massive scale, but like, the curves haven’t intersected yet,” he added.
Framework’s eyeing infrastructure plays right now, but that focus doesn’t mean that they’re not interested in apps either.
Last week, as EthCC wound down, there was a lot of chatter about how the conference seemed very focused on infrastructure and apps were more or less forgotten.
But while apps might not be a conference topic, it doesn’t mean it’s getting ignored by VC. Anderson’s firm is currently intrigued by “games and weird consumer applications,” like Puffpaw’s vape-to-earn system for helping folks to quit vaping on Berachain.
“Our perspective is that the first applications to hit this level of steel that the infrastructure is now supporting are games,” he said.
At the end of the day though, infra will also remain top of mind for Anderson too. “We’re always going to need bigger, faster, cheaper blockchains,” he said.
Perhaps we won’t see an ETH killer this go-around, but we sure are witnessing an extremely interesting cycle play out in real-time.
— Katherine Ross
Data Center
- A smallish Polymarket pool puts the odds of an ETH ETF tradingby July 26 at 83%.
- Uniswap and Tether are still the no. 1 Ethereum apps by fee spend, with 2,010 ETH ($6.7 million) and 838 ETH ($2.8 million) burned in the past 30 days.
- Telegram trading bots BananaGun and Maestro are third and fourth, each burning over 400 ETH ($1.33 million).
- Memecoin MOG has entered CoinGecko’s top-100 and is currently its best performer, surging 52% in the last week.
- BTC and ETH are both up 4.5% over the past day, to $62,570 and $3,340.
Summertime sadness
Ethereum is in the midst of a vibecession.
At least, that’s going by the Twitter metric, which is notoriously fickle.
Following EthCC in Brussels last week, questions swirled around whether the ecosystem was really on track to mass adoption.
Were there enough interesting crypto apps in the pipeline to justify all the venture funding into infrastructure?
It’s not exactly a new problem for the crypto space. Outside of a few extreme periods, such as the brief inscriptions spam that crippled a string of EVM chains last year or the legendary CryptoKitties congestion, there have always been more blockchains than users can actually use.
Wallets, lending protocols, decentralized exchanges and prediction markets are all apps. And, as far as crypto goes, apps within all those categories are about as popular as can be with the folks who are actually here.
To be clear, Solana — the last line of defense for monolithic blockchain design — has its own brand of congestion issues.
But it’s hard to argue that there isn’t some degree of layer-2 fatigue out there when it comes to Ethereum.
Over the past year, at least 19 layer-2 Ethereum networks have launched, per DeFiLlama data. Each one has its own brand of apps — usually at least one DEX and a lending protocol — leading to fragmentation of users and liquidity across the different chains.
“Vibecession” — a term coined by financial commentator Kyla Scanlon — refers to the phenomenon of widespread negative sentiment about the economy, despite things being pretty okay, and even going up.
In the same sense, Ethereum’s vibecession probably isn’t actually indicative of the actual health of the underlying ecosystem.
But it is possible to point to sadness in the data: When the market bottomed out in November 2022 following the FTX debacle, there were as many as 35,200 Twitter accounts posting about Ethereum every day, based on a 30-day average.
Now, there are only 6,600 — an 80% drop.
Solana saw a boost following FTX, too, probably on account of the ecosystem’s connection to Sam Bankman-Fried, and a subsequent fall.
But since the bitcoin bull market really kicked off last October, the number of Twitter accounts posting about Solana has exploded from under 700 to almost 3,000 currently.
Perhaps the most telling of all is Ethereum’s “NVTweet Ratio.” Data provider The Tie developed the metric to compare a cryptocurrency’s social media activity to its market cap: How many tweets does each project have per $1 million in market cap?
A lower NVTweet Ratio means more tweets per $1 million market cap — correlating social media chatter to high valuations.
It turns out that Ethereum’s NVTweet Ratio has more than tripled since December — when markets were betting hard that the SEC would finally approve spot bitcoin ETFs.
That means that ether’s market cap is growing faster than its Twitter mentions, which could reflect less retail involvement in Ethereum markets, according to The Tie.
“An increasing NVTweet™ Ratio could suggest that a particular coin’s market is becoming increasingly driven by institutional trading.”
And there’s your vibecession.
— David Canellis
The Works
- Bernstein says there’s a ‘Goldilocks scenario’ playing out for bitcoin miners.
- Alexey Pertsev, the Tornado Cash developer convicted of money laundering by a Dutch court, was denied bail, DLNews reported.
- BlackRock’s assets sit at a whopping $10.6 trillion, the world’s largest asset manager disclosed.
- Former Chainalysis chief economist Philip Gradwell joined Tether as its head of economics.
- Digital asset investment products saw $1.44 billion worth of inflows last week, with bitcoin topping the fifth-largest weekly inflows on record, CoinShares noted.
The Riff
Q: What does bitcoin going up after Trump’s attempted assassination say?
I’ve seen some analysts note that the price action in bitcoin — which jumped to $62,000 after the assassination attempt — is partly driven by another week of impressive ETF flows.
All told, it’s hard to separate how much could be the ‘safe haven’ play versus the ETF play.
Either way, the overall market’s been in a weird place. But this could give the environment an unexpected catalyst, which pushes bitcoin up further and gets it out of the sideways rut it was in for months.
The other thing is that the stock market, for example, loves certainty. I think it’s fair to say that’s been imprinted on bitcoin at this point, too. The attempt on Trump’s life has completely derailed the unknowns around Biden’s re-election bid, and — according to some rumors — even secured his place as a Democratic candidate.
There’s a lot of speculation out there, and it’s not clear if bitcoin is really being treated as a safe haven asset or if this is just the perfect storm that traders have been waiting for.
— Katherine Ross
The general consensus right now is that crypto could broadly do well under a second Trump term.
But price action right now is very likely just noise.
For the longest time, bitcoin has been tipped as a hedge against global instability. A flight to the safety of uncensorable hard money that can’t be confiscated by totalitarian regimes, idealistically, at least.
Except that hasn’t always been the case. Bitcoin crashed alongside the stock market during the worst of COVID, and more recently, tanked over 10% when Iran attacked Israel in April.
Odds for Trump to win the election are rising, and if anything, bitcoin going up after he survived suggests crypto markets reckon the world will be safer and more stable if he’s re-elected, at least for the average crypto investor.
Either that, or this was the “buy the rumor” part of the “sell the news” arc. Classic.
— David Canellis
