ETH: Stiff competition and hard truths
ETH: Stiff competition and hard truths
MacroTactical Crypto #32
This is a free preview of MTC 32… In this note:
Why it looks like crypto has peaked and will make new cycle lows in September.
Why ETH faces stiff competition from other yielding assets.
Carry-to-vol explained.
Why SHIB is still worth 7 billion USD.
A Requiem for Star Atlas.
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Today’s note is 1800 words (9-minute read).
ETH: Stiff competition and hard truths
My views from last week are mostly unch’d:
New cycle lows coming for crypto in September.
The 2000 top in ETH and the 25000 top in BTC look like cycle highs. MSTR is finding gravity after briefly leaving the atmosphere into wildly overvalued territory as BTC flops and Saylor is arrested for fraud (again).
I am less bullish USD overall so that’s good for crypto at the margin, but any respite in the dollar is probably just a short-term thing into the 08SEP ECB meeting. Anyway, part of the reason I’m less bullish USD is that the ECB looks to finally be getting some hawkish religion. Global real rates are ripping and that’s bad for fiat debasement plays like crypto. If crypto is a hedge for loose policy and idiotic monetary excess—you don’t need that particular hedge these days. Central banks are not loose!
17500/21000 expected range for BTC over the next week.
ETH is now sell on rallies (1700/1770 sell zone) as the pre-Merge load up and buy the rumor happened pretty early and The Merge looks fully priced to me (more on that later). Longs are looking for exit opportunities and there’s now big resistance at 1700/1770.
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The 1700 level was huge support in ETH in May. When it finally broke, that became resistance. We chopped around it for the first half of August, Merge hype took us up and away for a week or so, but we failed and 1700 is a ceiling once again. ETH really does not like it above 1700. Here’s the chart.
ETH hourly April to now
Who is going to buy ETH after the merge?
The reason “buy the rumor / sell the fact” works as a general pattern in financial markets, especially in markets populated mostly with inexperienced traders, is that everyone wants to be long when good stuff is about to happen, but once the anticipated good stuff transpires… There is no real reason to be long anymore. After the expected catalyst or event happens, everyone tries to sell at the same time post-event… And whoosh.
Almost all highly-anticipated events in crypto have been textbook buy the rumor / sell the fact trades. Elon on SNL, the futures launch, the futures ETF launch, El Salvador adopts bitcoin day, and so on. An important and notable exception to this is that bitcoin halvings are known events that have resulted in prolonged bull markets, not buy the rumor / sell the fact. So, I am by no means guaranteeing The Merge is buy rumor / sell fact, but if you think ETH rallies post-Merge, you need to be able to answer this question:
“Who is going to buy ETH immediately after The Merge?”
Because there is a 100% chance of significant selling by short-term specs in the hours and days after the Merge. They are simply (and logically) front running the event. I’m not talking about long-term buyers and inflows… Those will come when they come. Crypto hedge funds are not sitting on the sidelines waiting for the Merge to happen so they can buy ETH at 1550. They’re either long already or they might be leaving bids lower, but they are not waiting for the Merge to get out of the way so they can go to market.
While Vitalik’s cocky promotional photo-op for The Merge was funny, I wonder if it adds another layer of doubt for institutional investors already nervous about ad hoc regulatory slapdowns. Maybe there is less institutional wood to chop than people think. Ethereum has erected significant barriers that make it hard for others to compete. But ETH still faces stiff competition from similar solutions that are better on various metrics, regardless of the ETH use case examined.
The big argument for post-Merge ETH longs is the digital bond hypothesis. “It will be an ESG compliant, commodity-linked digital bond!” is a key to the bull case. I can’t get past the simple TradFi notion that ETH is way (wayyy) too volatile for any institution to care much or at all about the yield. Here’s why…
This has been a free preview of the latest MTC. The rest of the note covers why ETH is a bad bond substitute, why SHIB is worth 7 billion, and why you don’t have to worry about the ATLAS lockup expiry in September.
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Thanks.
bd