Author: David C, Bankless; Translation: Deng Tong, Jinse Finance
In the two weeks since Trump's re-election, our sentiment towards cryptocurrency regulation looks very promising, especially for ETH.
Although ETH has stabilized since its post-election surge, institutional demand continues to rise, and with staking levels reaching historical highs, supply will only contract further. This attractive market setup, combined with expectations of relaxed regulation, paves the way for ETH ETF staking and the fee switch in crypto protocols.
As Ethereum prepares to capitalize on these trends, there are ample reasons for its excellent performance and that of its strongest L2, Base.
In this article, we will delve into Ethereum's supply-side mechanics, its institutional interests, post-election price movements, and how the Base ecosystem can benefit from such a favorable environment.
Supply Decrease
Between historically high staking levels and the potential for entering a new burn cycle, Ethereum's supply situation suggests some particularly favorable market dynamics.
Currently, a significant portion of ETH is locked, with about 29% of ETH staked, most of which is in liquid staking tokens, indicating that ETH is widely used in DeFi and re-staking protocols. Overall, this indicates that the staked ETH has a strong locking effect, granting it exceptional scarcity among blue-chip tokens.
Additionally, as ETH issuance trends downward, Ethereum seems to be on the verge of a new burn cycle, further intensifying the token's deflationary pressure. With gas fees on the rise and transaction volumes exceeding the 30-day average, the demand for block space appears to be causing ETH burn rates to outpace issuance.
The last burn cycle began in early 2023, illustrating how dynamics drive value appreciation as ETH becomes scarcer and more valuable.
With ETH at historical highs and signs indicating that block space demand is once again surpassing supply, this deflationary pressure could help drive ETH's price growth beyond performance.
Increasing Institutional Demand
If there is one thing that has become clear since Trump's re-election, it is that Ethereum's appeal among institutional investors has increased.
Since Trump's victory, ETH ETF inflows have surged, achieving positive total flow for the first time since its launch in July. Considering the initial spike of blue-chip DeFi tokens post-election and the anticipated fee conversion, the surge in ETH ETF inflows indicates that the market expects the new government to adopt a friendly stance towards yield-bearing assets, possibly allowing Ethereum staking via ETFs.
Previously, there were concerns about Wall Street's understanding of Ethereum's value proposition. However, through this new upward trend, it is evident that institutional investors are beginning to view Ethereum as a yield-bearing crypto asset. Further evidence of this understanding is Bitwise, the ETF issuer, acquiring institutional-grade Ethereum staking provider Attestant, preparing for this future.
Overall, these developments indicate that institutional understanding of Ethereum as the only regulated yield-bearing crypto asset is deepening, which may accelerate with the prospects of supporting stake ETFs.
Base Case
While Ethereum has promising market dynamics, its star, Base, seems ready to serve as the primary environment to fully leverage its price growth.
First, let’s revisit May when ETH experienced a massive ETF reversal candle. While many alternatives like LDO and ENS achieved impressive gains, the standout performer was the Base ecosystem. On L2, although leaders like DEGEN achieved 30% gains, lesser-known memes saw triple-digit growth. Now, we have multiple 'larger' memes achieving triple-digit increases within a week, with MIGGLES up about 330%, KEYCAT up about 150%, Ski Mask Dog up about 100%, and many smaller memes seeing even larger gains.
Additionally, there is a thriving ecosystem around the Virtuals Virtuals Protocol, which has spawned a series of AI agents and integrated Base into one of the leading narratives.
Moreover, from a fundamental perspective, Base has outperformed all other L2s, with surges in Total Value Locked (TVL), daily active addresses, and daily transaction volume. All these actions position Base to become the dominant L2 and the primary environment for everything related to ETH in the near future, further supported by Coinbase's funding and its infrastructure and marketing engine.
That being said, Base's outstanding performance, thriving ecosystem, and unparalleled growth metrics position it as the leading L2 to leverage Ethereum's price growth in the coming years.
Summary
Cryptocurrency regulation under Trump may bring hope, seamlessly combining with Ethereum's supply squeeze and awakening institutional interest, creating compelling reasons for its strong performance.
With ETH staking reaching historical highs and the burn cycle approaching, Ethereum is poised to benefit from an increasingly scarce supply. These trends fit perfectly with the growing institutional demand, evidenced by the surge in ETF inflows and Bitwise's acquisition of Attestant, indicating Wall Street's increasing recognition of Ethereum as the premier yield crypto asset.
Base is the most powerful L2 for Ethereum, consistently demonstrating excellent performance and ecosystem growth, uniquely positioned to benefit from this growth. From its dominance in TVL and daily activity metrics to its rich on-chain environment closely tied to top trends like memes and AI, Base is bound to become the primary platform leveraging Ethereum's growth, strongly supported by Coinbase.
Overall, Ethereum appears capable of becoming a leader in the next cycle, highlighting that Ethereum is ready to capitalize on opportunities arising from an increasingly friendly regulatory and market environment.
