Ever since Blackrock (NYSE: BLK) announced its Bitcoin (CRYPTO: BTC) ETF, the market cap of BTC has surged, now exceeding one trillion dollars a monumental figure. To put this into perspective, even if you combined the market caps of major corporations like Coca-Cola (NYSE: KO), Disney (NYSE: DIS), AMD (NASDAQ: AMD), and Intel (NASDAQ: INTC), their total would still fall short of BTC’s colossal valuation. This staggering growth not only underscores the significant market confidence following Blackrock’s endorsement but also highlights Bitcoin’s expanding influence in the financial world. The waterfall effect is inevitable, with smaller yet substantial funds like Fidelity and Templeton following the same path.
The market is rarely wrong when it comes to pricing in announced future events, and today we are witnessing Bitcoin price reaching an all-time high right before its next halving, something we have never seen before. The euphoria over BTC surpassing 73,000 USD is clearly not the same as the euphoria at 69,000 USD during 2021, with a refreshed market and a declining path projection for the Fed funds rate. Furthermore, it's worth noting that Blackrock is now buying over 45 million USD of BTC daily.
Looking at the past, we have seen the cryptocurrency market grow between 10x and 50x after each halving. And we are yet to see an approval for an Ethereum ETF, which Blackrock also presented.
Ethereum (CRYPTO: ETH) provides crucial blockchain infrastructure necessary for building applications for enterprises. Among the thousands of applications, we find Infura and Consensys, both owned by J.P. Morgan (NYSE: JPM). So, it would not be too far-fetched to envision a scenario where Ethereum rises above the trillion-dollar market cap in the short to medium term, potentially leading its price to exceed 10,000 USD per ETH. In this case, we could witness a departure from the traditional crypto theory of capital migration, where money flows first into BTC, then into ETH, and subsequently into the high caps, low caps, and altcoins, respectively. This time, Ethereum might be charting its own, somewhat independent trajectory.
Our analysis at Finanflix concludes that the Ethereum token is becoming increasingly deflationary as activity on its blockchain rises, consequently influencing DeFi behavior.
After Ethereum’s brand and token experience a significant surge, we should expect much of the capital to migrate to DeFi protocols built on its blockchain. Initially, Ethereum's infrastructure will struggle to handle the massive increase in transactions, and that is when its Layer 2 protocols such as Arbitrum (CRYPTO: ARB), Optimism (CRYPTO: OP), and Polygon (CRYPTO: MATIC), among others, will see a spike in activity. This will put upward pressure on their prices since these protocols' tokens are necessary to pay fees, and all the money flowing from ETH will naturally gravitate first toward the nearest protocols in terms of use. Having previously seen price returns of over 1000%, we would not be surprised to witness a similar situation under these circumstances.
A closer look at the decentralized applications (DApps) running on Ethereum could reveal price discovery events with UNI from Uniswap (CRYPTO: UNI), Ethereum’s leading decentralized exchange, surpassing 100 USD per token, or AAVE (CRYPTO: AAVE), Ethereum’s primary lending protocol, reaching 1000 USD.
Finally, regarding the myriad of low-cap protocols like Verasity or Arkham, not to mention meme coins/altcoins, the potential returns are uncertain. We must remember that when the real bull market hits crypto, the market can become completely irrational.
Today, the DeFi total value locked is back over 100 billion USD. But this time, the ecosystem is much more developed, the protocols are generating revenue, and the overall market conditions are unlike anything we've seen before. This precedent is likely to elevate DeFi to new levels of validation and trust, and once this happens, we will be witnessing a truly different paradigm. The opportunity cost of skepticism in these times may just be too high.