Since the launch of BTC ETF, cryptocurrencies have experienced a wave of rapid growth this year. Many "bigwigs" in the currency circle have bullish expectations of 200,000 or even 1 million US dollars. However, just when everyone was still full of expectations for future prices, the currency price began to fall from mid-March, which lasted until early May and poured cold water on many people.

Although the market has experienced a large-scale reversal in recent days due to the news of the approval of the ETH spot ETF, looking back, this correction has also caused a lot of reflection for many people, and even many people have fallen in the "darkness before dawn" because of this correction.

Why you didn't expect the pullback

Many cryptocurrency investors will find that when everyone seems to be optimistic about the future market, why does the market have such a big correction? Is it because everyone is singing long and selling short? Or is it that the dealer is taking advantage of everyone's enthusiasm to sell and hit the pit?

In fact, a large part of the reason here is the problem of investors' acquisition of information and the psychological state caused by the inconsistency between retail investors' concepts of cryptocurrency and those of institutions or large investors.

First of all, most retail investors who invest in cryptocurrencies buy them actively, and only a few people with strong financial resources will invest rationally. Most of the reasons for active purchases are that the "political" correctness of the currency circle is to be bullish all the time. This is particularly evident in Western countries, especially among retail investors in the United States. If you are bearish on cryptocurrencies in the United States, you will get a lot of rebuttals. Even now in the 24th US presidential election, Trump has begun to support cryptocurrency donations in order to cater to cryptocurrency investors. Biden was hostile to cryptocurrencies before, but now he is showing signs of "loosening" contrary to his usual behavior. After all, the votes of young people who hold a large amount of cryptocurrencies are also very critical. This also means that if you want to win people's hearts, you have to be bullish on BTC.

However, for investment institutions and smart money that actually hold large funds, they may not be swayed by the idea of ​​"keeping rising". These people will regard crypto assets as investment products like gold and crude oil. They will study the market supply and demand, mining costs, emotions, K-lines, policies, etc., so as to analyze the market trends and come up with buy or sell instructions.

But for ordinary people like us, who are exposed to all kinds of bullish information for a long time, we will naturally put this point of view into practice in actual actions, and it is difficult to change. Of course, the operation of bullish and buying more is likely to be correct in the long run, but in the short term, this is not an excellent solution.

The 80/20 rule tells us that no matter how decentralized or dispersed the underlying assets are at the beginning, they will eventually be concentrated in the hands of a few people, although there are many channels and ways. Therefore, when the market rises too fast and too violently in a short period of time, there is a high probability that there will be a callback, and then more people will lose their chips. When the chips are almost collected by the main players, they will be distributed to achieve the decentralization of the chips again. Although you can make money by holding the spot all the time, if you don't move, these chips will be classified as dormant chips and are not within the scope of active chips. The ultimate goal of the main players' various actions is to earn a gain far higher than the market average.

Ethereum Bull Market Supply and Demand Analysis

After understanding the cryptocurrency investment mentality of the above-mentioned main players, we can know that there is no investment product that only rises and never falls. At the same time, we need to remain rational about the bullish sentiment of various information and not get lost in it, otherwise it is easy to be trapped. Although the trap will be released later, if investors are trapped for a long time without strong determination, it is easy for them to lose their minds and sell at a loss.

Next, we analyze the supply and demand relationship in the Ethereum bull market based on this mentality.

First of all, the current Ethereum ecosystem is mainly divided into three categories:

Pledge and income

DeFi Financial Applications

Non-financial applications

As L1 layer to provide support for L2

Staking and yield-based products are currently booming, but they have not yet become capable of independently supporting the bull market. Although it involves the Ethereum economic model, as an extension of DeFi, it is easy for us to see its similarities with DeFi. Therefore, it can only add icing on the cake in the bull market, but cannot stand alone.

DeFi financial applications attracted a lot of capital to participate in the last bull market, and its continuous innovation has almost reached its peak. At present, DEX, Swap, coin deposit and lending, liquidity mining, etc. are basically mature. New projects can only gain market attention unless they have a better trading experience, otherwise no one will be interested.

Compared with the traditional financial field, the bond and derivatives markets have not yet been involved in the DeFi track, so they can be the focus of attention in this bull market.

Non-financial applications, including derivatives similar to traditional Internet applications and products such as games, are currently less explored and there are still many opportunities in the future. However, judging from the current situation of the cryptocurrency market, there are still many aspects of the non-financial market that have not been involved, so this has also become the focus of this bull market.

The L2 layer is also one of the key factors in Ethereum's growth. Although most L2s currently use ETH as the Gas token, with the subsequent development of L2, it is also possible that governance tokens will be used as Gas tokens. At that time, ETH will also face the problem of reduced demand.

Overall, ETH has shown signs of weak growth in ecological applications, so ETFs are also the focus of this bull market. But on the other hand, ETFs cannot run through the entire bull market, so we need to pay more attention to whether there are disruptive applications in the ETH ecosystem, which can support Ethereum's leading position in the bull market.

At the financial ecosystem application level, ETH is currently facing the suppression of Ssolana, which can be seen from the price performance of ETH and SOL we have seen recently. From the bear market in 2019 to the bull market in 2021, the price of ETH increased by nearly 40 times from the lowest point to the highest point, and the price of BTC increased by about 20 times. According to the price growth trajectory of BTC, the price of BTC in this round of bull market may reach between 100,000 and 200,000, that is, the lowest to the highest point is about 10 times, and ETH may increase by about 20 times, that is, it may be around 20,000.

Taking into account the impact of the market value of BTC and ETH, the current market value of BTC is 1.3 trillion, and that of ETH is around 440 billion. That is to say, if ETH doubles more than BTC, the ratio of ETH/BTC will be close to 0.1. During the bull market in 2017, this ratio was 0.12, and the highest in the last bull market was 0.075. Obviously, this is not reasonable. Therefore, the highest price of ETH in this bull market may be less than US$20,000, and a more reasonable price is between US$10,000 and US$20,000.

Ethereum ETF Analysis

Although everyone knows that the approval of the Ethereum ETF is good news, another detail worth paying attention to is whether the ETH in the currently submitted spot ETF can be pledged. Since the United States is still using old legal provisions, according to the SEC's idea, anything that can be pledged to generate interest may be judged as a security. Ethereum could be obtained through mining before, which belongs to POW, and then it was converted to POS. According to this setting, Ethereum may not fully meet the requirements for ETF listing. Therefore, even if the SEC may compromise, the spot ETF may not be used for pledge.

This is not good news to a certain extent, because investors may need to wait longer when redeeming the staked ETH, while there is no such restriction if the ETH is placed directly in a custodial wallet. Therefore, to a certain extent, it may be similar to the BTC ETF. When the market conditions turn bad, the selling pressure will be great.

Of course, in the bull market, the approval of ETH's spot ETF is good news. The impact of individual flaws in the rules is not that great. In addition, this also means that many institutional investors and global funds, family offices, etc. can buy ETH by purchasing ETFs, which is equivalent to locking up ETH. Because if you participate in on-chain Staking or DeFi, you will always release liquidity through multiple protocols, just like the difference between stETH and ETH, plus the popularity of on-chain leverage, so ETFs are equivalent to locking up the value of ETH.