wNews: Ethereum Hits All-Time High, Shutting Out Retail DeFi Investors

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This week’s edition of wNews dives into why Ethereum and DeFi are currently surging. More importantly, though, the space was again faced with staggering gas fees reminding newcomers that it’s a whale’s game.

Portfolio size aside, Bitcoin traded sideways this week after a rather volatile January. Data suggests that dip-buying is the current trend despite a steep correction on the cards. Still, new all-time highs are likely to arrive before that happens.

Finally, an emerging NFT index saves investors time and effort when trying to ride the digital collectibles trend. Froth nor not, this project offers exposure to some of the most popular NFT tokens in the space.

All that and more, below.

Ethereum Goes All The Way

The major headline this week was the meteoric rise of Ethereum. As ETH breached $1,600, recording a new record high for the second time this year, various DeFi projects followed closely.

Etherean moon bois took to Twitter to celebrate the “inevitable.”

ETH is less than 6% the value of gold

Room to grow I'd say

— RYAN SΞAN ADAMS – rsa.eth (@RyanSAdams) February 4, 2021

The surge’s reasons are myriad, but Nansen founder and CEO, Alex Svanevik, cited two in particular. “Ethereum has solidified its position as the number one blockchain for decentralized finance, putting the ‘Ethereum killers’ narrative to sleep,” he told Crypto Briefing. 

“There’s also strong evidence of retail inflow, which can be seen across metrics. January, for instance, had the highest amount of active Binance depositors since 2018, according to data from Nansen.”

Alongside ETH, Aave (AAVE), UMA Protocol (UMA), and SushiSwap (Sushi) also entered price discovery. The moves from these smaller tokens and their dominance in the DeFi sector suggest an entirely different kind of alt season. In 2017, for instance, tokens like Cardano (ADA), Tezos (XTZ), and Ripple (XRP) all mooned despite their lack of utility at that time. 

The altcoins of yesteryear lacked clear use cases and convenient user interfaces for the here and now. DeFi tokens are much different. 

Aave offers real utility in its bank-like savings and lending arrangement. UMA has created a rather sprawling design space for synthetic assets. And Sushi, well, the upgrades have been myriad, and it even boasts deeper liquidity for some pairs than its counterpart, Uniswap. 

There’s also been a few important bits of news that have fueled these tokens’ growth. 

Svanevik reminded that both Uniswap (UNI) and Aave were included in Grayscale’s recent filing for new trusts. This allows traditional investors to “make direct bets on the DeFi sector,” said the Nansen CEO.

Unlike the 2017 altcoin wave, users can easily measure how all of these protocols are doing this time around. Bobby Ong of CoinGecko told Crypto Briefing: 

“There seems to be a rerating of DeFi projects as these projects continue to attract large whale users during this crypto bull market. Total Value Locked in USD terms on many DeFi projects has continued to increase as a function of increasing crypto prices. The Price/Sales ratio for many of these projects continues to be low and fundamentally attractive to traders.“

The rise in this batch of tokens also added fuel to the ongoing index wars happening in DeFi. The largest combatants include DeFiPulse (DPI), Indexed Finance’s DeFi Top 5 Tokens Index (DEFI5), PowerPool (PIPT), and Synthetix (sDEFI). 

All indexes enjoyed double-digit gains over the past seven days, but sDEFI took the crown with a whopping 59.7% rise in the same period. In the last 24 hours, DPI leads with a 15% rise.

Whichever index investors are holding, all of them are winning big. 

Unfortunately, those looking to buy any of those tokens were left out in the cold. Soaring gas prices amid the flurry of mooning tokens made even simple token swaps extremely expensive. Ong cited this as a major threat to Ethereum as “DeFi is now only constrained to large whales who can afford to pay the high gas fees and is no longer welcoming to beginners.” 

Thus, as growth mounts, so too do the barriers to entry.

In the past, high gas prices have crushed whole businesses. This time around, some firms are cutting over to new networks before overhead becomes dire. 

There are very few workarounds to this issue in the immediate. Ong recommends that newcomers keep a close eye on gas prices, and make their move once it drops. Zooming out, however, moments like this make Layer-2 solutions and alternate blockchains hugely enticing. 

Experiment: Write the best possible 1-tweet pitch for your "ETH killer" of choice.

– Polkadot
– Avalanche
– Solana
– Tron
– Cardano
– EOS
– NEO
– RSK
– Algorand
– Tezos
– NEAR
– Flow
– Cosmos
– DFINITY
– Hashgraph
– Binance SC

Will hide all replies except the best one for each.

— Eric Wall | OP_😺 (@ercwl) February 3, 2021

Optimism PBC and its Layer-2 solution are enjoying the most traction as of late, particularly in the DeFi space. Already, Synthetix, Uniswap, and Chainlink have tapped Optimism for their scaling needs.

There’s still a long road ahead, but these developments have been promising for said Ethereans. 

This isn’t the only solution, of course, and Svanevik added that each solution is in a neck and neck race to onboard users. “I expect to see the L2 ecosystem flourish around Ethereum and that some of the heaviest gas consumers like Uniswap will migrate some portion of their usage there. Having said that, L2 adds another level of complexity to the Ethereum user experience, which is already quite convoluted,” he said. 

Alongside these developments brews a key debate: Will Layer-2 arrive before an alternative blockchain overtakes Ethereum?

The list of competitors is long, but Ong only has his eyes on two protocols: Solana and Polkadot. He said: 

“Other Layer 1 blockchains in my opinion do not have a chance at challenging Ethereum. I am expecting several Ethereum DeFi projects to also be available on Solana soon and it will be exciting to see how both Polkadot and Solana will compete against Ethereum.”

None of this has yet settled, of course.

Unfortunately, the biggest winners until a key winner emerges will be users with large portfolios. Only those who can afford the high cost of operating within Ethereum will truly enjoy the bounties of the booming DeFi space. 

Market Action: Bitcoin (BTC)

Elon Musk changed his Twitter bio to “#Bitcoin” early morning Friday last week. 

Endorsement from the world’s richest man caused a major upswing in the price of over 15% to the weekly high of $38,600. Besides Musk’s shout out, BTC’s recent price action was also due to a massive $3.5 billion options expiration. 

Bitcoin has continued to trade in a horizontal range between $38,800 and $29,013. The mid-line of the range at $33,500 is acting as a crucial resistance and support level. 

The weekly high of $38,600 and the all-time high of $42,000 are the most crucial Bitcoin resistance levels. 

The on-chain flow of old coins versus daily transaction volume suggests that Bitcoin has averted large-scale profit bookings from early investors. 

The dormancy flow, which measures the ratio of old coins moved to the daily on-chain volume, reached the overbought threshold early in January. The metric has been useful in identifying generational tops and bottoms in BTC price. 

The graph took a negative turn at the resistance as profit booking slowed. 

Currently, it suggests that Bitcoin may undergo a correction similar to 2019 when BTC price dropped from $13,800 to lows of $7,000—a 50% correction.

The derivatives market dominates Bitcoin trading, specifically longs. This is another worrying signal for the market. The open interest for Bitcoin futures, combined at regulated and non-regulated exchanges, is nearing its peak of $13.1 billion. Currently, the open interest is $12.2 billion. 

The momentum of spot buys at global platforms like PayPal, Cash App, and the institutional addition of BTC must continue to avoid a deeper correction. According to lead Bitcoin analyst at SIMETRI, Nathan Batchelor, this appears to be precisely what is happening. Batchelor told Crypto Briefing: 

“On-chain data surrounding BTC looks very solid at the moment. Dips are being bought up aggressively and the technicals for Bitcoin look to have improved considerably over the recent days. I would not be surprised to see $42,000 taken out before a meaningful pullback occurs.” 

Market Action: Ethereum (ETH)

Ethereum’s native cryptocurrency, ETH, broke above the bullish ascending triangle pattern, targeting a price of $2,100. 

The support levels for correction are at $1,400, $1,200, and $1,050. 

The number two cryptocurrency has performed better than Bitcoin since the correction from all-time highs. 

Crazy thought, but you would've made more selling $BTC to $ETH than btc to usd at the local 41k top.

Crypto/crypto if you want to play cycles.

Crypto/fiat up only.

— 朱溯 🐂 (@zhusu) February 2, 2021

ETH gained 133% from the year’s start, reaching a peak of $1,700. In comparison, Bitcoin surged 45% in the first week of January and has stalled below since. 

Ethereum’s use for DeFi has caused a surge in the network’s fees. The median gas price for Ethereum transactions is 225 Gwei, more than $100 at press time. 

While the above trend may cause the retail DeFi crowd to look for alternative platforms, Ethereum’s median transaction volume of $1,050 indicates that it is still the preferred network among high-volume investors. 

In other news, futures contracts for Ethereum will go live on CME on Monday, allowing American traditional finance investors to bet on Ethereum. 

Many see the CME debut as a clear top for ETH, much like BTC in 2017. Still, some believe otherwise. 

I don't expect a crash after the launch, as it happened in 2017. For two reasons. First, the market is now more mature, the macro is different, and there are different players involved. Second, $ETH remains a high beta asset. $BTC determines the market direction, $ETH follows.

— Alex Krüger (@krugermacro) February 3, 2021

The price action of the number one and two cryptocurrencies in the coming week will help set the tone for the rest of the quarter. Batchelor of SIMETRI reported:

“Ethereum does appear to be targeting $2,400 after bulls triggered a massive cup and handle pattern on the higher time frames. Only a series of daily price closes under the $1,400 level would cause technical traders to question the validity of the ongoing breakout.”

Crypto To-Do List: Invest in an NFT index fund 

For those who’ve been following the crypto space closely, you’re probably already aware of at least some of what’s happening in the NFT market. 

Celebrities like Logan Paul, Soulja Boy, and Mark Cuban have now begun experimenting with on-chain digital collectibles—and that’s in the last few days alone. 

Before that, the industry saw Carl Cox announce that he would be tokenizing his music on Ethereum, Rick and Morty’s creator dropped a collection, and Beeple raised a record-breaking $3.5 million from his “Everydays” collection.  

Sorare has tapped some of the world’s best soccer players for its fantasy game as well. They’ll be available as tradable NFTs. These are just a few recent examples of the NFT craze. These digital artworks have long played an ancillary role in the Ethereum ecosystem. 

Firstly, social status was determined by CryptoPunks, and now people are changing their Twitter avatars to match their Hashmasks. 

Whatever one may think of this corner of crypto—overhyped, overpriced, groundbreaking, the future of art, or maybe a combination of all of these—it can be overwhelming to keep up.

Like many other areas of crypto, finding an NFT to invest in on Rarible or OpenSea is a full-time job of its own. And if investors are looking for a piece in a Nifty Gateway drop, they’d best be sure that they have a fast finger ready (the most sought-after pieces sell out instantly). 

Fortunately, there’s now a way to gain exposure to non-fungible tokens without going through the hard work involved with investing in the assets themselves. It’s made possible by a new platform called NFTX. 

NFTX creates ERC-20 tokens that are backed by NFTs. These tokens have different qualities to NFTs—they are fungible and composable. 

The tokens are known as funds, and anyone can create one. 

There are already funds available for various types of CryptoPunk, Axies, CryptoKitties, and Hashmasks. 

The funds fall under two categories: 

• D1, which are backed 1:1 by an NFT contract.
• D2, which are Balancer pools for combining D1 funds. 

In a blog post introducing the project, NFTX said its “current mission is to become a DeFi black hole for NFT assets.” 

The project launched last month and included the release of the NFTX token. Now trading at around $106.51, the token will be used to govern the protocol’s future. 

Though it’s still early for NFTX, plans include adding a liquidity mining program this year. 

As with any nascent crypto project, there’s no guarantee of success. But if it does achieve its goal of becoming a liquidity vacuum for all major NFT contracts. Based on the indexes that are already available now, it’s already making solid progress. 

In a space where future value is so hard to determine, NFTX could be the best way of getting started. 

That’s all for this week’s edition of wNews, readers. Stay tuned for next week’s dispatch.

Disclosure: At the time of writing, some of the authors of this feature had exposure to ETH, AAVE, BTC, UNI, and POLS.

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