Cryptocurrency regulation under Trump may bring hope, seamlessly integrating Ethereum's supply tightening and awakened institutional interest.
Written by: David C, Bankless
Compiled by: Deng Tong, Golden Finance
In the two weeks since Trump's re-election, our feelings about cryptocurrency regulation have appeared very hopeful, especially for ETH.
Although ETH has stabilized since its surge post-election, institutional demand continues to rise, and with staking levels reaching historic highs, supply will only further contract. This attractive market setup combined with expectations of relaxed regulation paves the way for ETH ETFs staking and the fee switches of crypto protocols.
As Ethereum is ready to leverage these trends, there are ample reasons for its outstanding 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 trends, and how the Base ecosystem benefits from such a favorable environment.
Supply Reduction
With staking levels at historic highs and the potential for entering a new destruction cycle, Ethereum's supply situation suggests particularly favorable market dynamics.
Currently, a significant portion of ETH is locked, with approximately 29% staked, most of which are liquid staking tokens, indicating that ETH is widely used in DeFi and re-staking protocols. Overall, this indicates a strong locking effect of the staked ETH, giving it exceptional scarcity among blue-chip tokens.
Furthermore, as ETH issuance trends downward, Ethereum appears to be on the brink of a new destruction cycle, which will further increase the token's deflationary pressure. With gas fees trending upward and transaction volumes surpassing the 30-day average, demand for block space seems to be causing ETH burn rates to exceed issuance rates.
The last destruction cycle began in early 2023, illustrating how these dynamics drive value appreciation as ETH becomes scarcer and more valuable.
As ETH reaches historical highs and there are signs that demand for block space is again surpassing supply, this deflationary pressure could help drive ETH's price growth beyond performance.
Increasing institutional demand
If anything 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 flows have surged, achieving positive overall flows for the first time since its launch in July. Given the initial spike in blue-chip DeFi tokens post-election and the anticipated fee conversions, the spike in ETH ETF flows indicates that the market expects the new government to adopt a friendly stance towards yield assets, potentially allowing Ethereum staking through ETFs.
Previously, concerns arose regarding Wall Street's understanding of Ethereum's value proposition. However, with this new upward trend, it is clear that institutional investors are beginning to view Ethereum as a crypto yield asset. Further evidence of this understanding is ETF issuer Bitwise's acquisition of institutional-grade Ethereum staking provider Attestant, preparing for this future.
Overall, these developments indicate that institutions are increasingly deepening their understanding of Ethereum as a uniquely regulated, yield-generating crypto asset, which could accelerate with the prospect of ETFs that support staking.
Base Case
While Ethereum has promising market dynamics, its star Base seems poised to become the primary environment to fully leverage its price growth.
First, let's look back at May, when ETH experienced a massive ETF reversal candle. While many alternatives like LDO and ENS made impressive gains, the best overall performance came from the Base ecosystem. On L2, while leaders like DEGEN gained 30%, lesser-known memes achieved triple-digit growth. Now, we have multiple 'larger' memes achieving triple-digit gains within a week, with MIGGLES rising about 330%, KEYCAT around 150%, Ski Mask Dog around 100%, and many smaller memes seeing even greater increases.
In addition, there is a thriving ecosystem surrounding Virtuals Virtuals Protocol, fostering a range of AI agents and incorporating Base into one of the leading narratives.
Moreover, from a fundamental perspective, Base's performance significantly outshines 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 primary environment related to ETH in the near future, further supported by Coinbase's funding and its infrastructure and marketing engine.
That is to say, Base's excellent performance, thriving ecosystem, and unparalleled growth metrics make it a leading L2 to capitalize on Ethereum's price growth in the coming years.
Summary
Cryptocurrency regulation under Trump may bring hope, seamlessly combining Ethereum's supply tightening with awakened institutional interest, creating a compelling case for its outstanding performance.
With ETH staking reaching historical highs and a destruction cycle on the horizon, Ethereum is poised to benefit from an increasingly scarce supply. These trends perfectly align with the growing institutional demand, evidenced by the surge in ETF flows and Bitwise's acquisition of Attestant, indicating Wall Street's increasing recognition of Ethereum as the primary yield-generating crypto asset.
Base is Ethereum's most powerful L2, consistently showcasing 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 sure to become the main stage for capitalizing on Ethereum's growth, strongly supported by Coinbase.
Overall, Ethereum seems capable of becoming a leader in the next cycle, underscoring that it is ready to seize the opportunities presented by an increasingly favorable regulatory and market environment.
