Empire Newsletter: Bitcoin surfs Elliot Waves to beat the heat

Plus, Ethereum is in the midst of its longest inflationary period so far — and it’s all blobs’ fault

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Iaroslav Neliubov/Shutterstock modified by Blockworks

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Just keep swimming

How low can we go?

Maybe the question should be: What’s the next high?

After bitcoin (briefly) broke below $60,000 yesterday, I saw some speculation on the next support level for bitcoin.

So I chatted with John Glover, Ledn’s chief investment officer, to get some insight into technical levels for bitcoin and the market at large.

This is clearly a topic we’ve discussed a few times here in the last couple of weeks as bitcoin searches for a foothold above $65,000. One such support level I mentioned was $60,000, and with that lost, Glover said the next level would be $55,000 or $56,000 (a level we saw back in May).

If bitcoin manages to break through that level, then keep an eye on $49,000. 

Obviously, when bitcoin drops, the larger market tends to take a beating. Glover, however, was still pretty optimistic overall. In fact, I asked about a potential “rough summer,” to which he told me he wouldn’t even characterize a summer that way, even if we went lower from here. 

Glover’s analysis is based on the Elliott Wave, which if you’re familiar with traditional technical analysis, is a theory focused on longer-term price patterns accounting for both psychology and changes in investor sentiment. 

If you’re a nerd like me, it’s an interesting way to gauge a longer-term outlook based on history repeating itself. And it makes for fun charts.

Putting that theory into practice, we’re in for a — shall we say, bumpy — summer. Which we sorta already knew…

Looking at the chart below, I’m happy to inform you that we’re probably at wave three. We’ve definitely gone through waves one and two, tracked by the chart. If we just hit wave three, then we could see yet another pullback before we start carving out a potential new all-time high. 

Here’s the thing: I’m talking to analysts and investors pretty much every day right now, and I’m hearing practically the same thing from everyone. Once we get through the summer, it could be smooth sailing from there (key word: could be). I mentioned yesterday and last week that we could see bitcoin above $80,000 by year-end, based on what I was told previously.

“My core case [is] that I believe we’re going to $85,000 to $95,000 by year end, but I don’t think there’s going to be a catalyst to do that until sometimes towards the end of the summer, which will likely be an ETF approval for Ethereum by the SEC, which will drive all asset prices higher,” Glover said. 

We could potentially see those ETFs approved by early July, with updated registration statements filed just last week, signaling that the SEC and issuers are close.

Glover’s prediction can be seen in either of the wave fives below.

Glover’s Elliott Wave analysis of bitcoin

 Glover pointed out that, at this stage, bitcoin’s trading like a tech stock. Think Meta or Tesla a few years ago. We’ll see it pull back, but then recover just like it did yesterday. 

Anyway, that’s enough on bitcoin specifically because I want to turn our view to other parts of the market. In an earlier edition of Empire, David pointed out that we have yet to see an altcoin season this cycle, which is clearly different from what we saw in 2022 or even earlier. 

Part of that can be summed up to investors being different this cycle, with the highly speculative retail investor in the minority this time around as the bigwigs — like BlackRock — take center stage with their products. And perhaps that’s not surprising after the shocker that was 2022, but let’s not dredge that back up right now.

My point is that Glover thinks altcoins may not bounce back this cycle, outside of the top five or so such coins.

“The traditional investors are not buying altcoins, and it’s just the retail guys who are buying altcoins, and a lot of them got really badly hurt in 2023. I think a lot of those people who used to be more than willing to speculate like crazy in the altcoin marketplace aren’t there now, they got hurt badly, and now they’re just like, ‘I don’t want to feel that pain again.’ So I think it’s just volumes, and rightly so,” Glover said. 

Throughout the next month or two, expect to feel slightly uncomfortable, Glover told me. But once we hit the fall, and there are clearer catalysts, get ready to run. 

— Katherine Ross

Data Center

  • BTC is flat over the past day while ETH is up 2%. Both have bounced and are sitting at $61,200 and $3,380, respectively.
  • Memecoins and AI tokens have rebounded the most in the top 100, led by WIF, BRETT and BONK with over 17%. AAVE is in between them, gaining 16%.
  • Daily CEX liquidations have passed $188 million, two-thirds of that coming from longs.
  • zkSync Era bridges have seen $72 million in net outflows in the past week, while $50 million net has altogether flowed into Polygon and Polygon zkEVM
  • Daily derivatives volume hit their highest point in a month on Monday, reaching $12.06 billion, up 150% on the previous day.

Ultra-elastic money

Ethereum is in the midst of its longest inflationary period so far. And it’s all blobs’ fault.

The circulating supply of ether has now risen steadily for almost 72 days in a row, having added nearly 50,000 ETH ($168.7 million) since the middle of April.

All while the number of Ethereum mainnet transactions have gone up and layer-2 activity has exploded.

ETH has only turned inflationary on a handful of occasions since the Merge in September 2022, the longest being a 40-day stretch shortly after the hard fork and a 30-day period late last year.

On top of ditching proof of work for proof of stake, the Merge allowed ether to turn deflationary on a per-block basis.

Ethereum’s base fee, which users pay to transact on the network, had previously gone to miners as part of their reward for spending electricity to discover blocks. But without any electricity costs post-Merge, the total block reward would have far exceeded overheads. 

This could’ve skewed the currency’s supply distribution over the long run, with validators eventually accumulating a disproportionate ETH that would be almost pure profit. 

The purple line shows the total ETH supply since the Merge. Weekly fee spend is in blue, and inflationary periods are marked by the purple bands.

To make many things fairer for regular users, developers opted for base fees to be burned. Validators instead receive a mixture of priority fees, reduced block rewards, and if they activate it, additional MEV yield. 

Meanwhile, all ETH holders benefit from any ETH burned due to increased scarcity. However, the opposite is currently happening — ETH is becoming less scarce — now that Ethereum’s base fee is sitting at some of its lowest points in the past two years.

Ethereum’s base fee is way down, L2 activity is way up, and mainnet activity is growing slowly.

Ether is inflationary because there are far fewer of those base fees to burn. And blobs are the culprit. The Dencun update in March made special room in every block for layer-2 networks to settle “blobs” of transactions without bidding against regular mainnet users. 

This, combined with more efficient data availability through proto-danksharding, led to massively reduced competition for block space. 

With enough block space for everyone — including L2 users via blobs — Ethereum base fees have nosedived 90% since Dencun, making it more likely that every block issues more ETH than can be burned. 

To be clear, Ethereum has burned a ton of supply since the Merge, although most of it was pre-blobs. Overall, 1.71 million ETH ($5.8 billion) has been burned and 1.36 million ETH ($4.46 billion) has been issued, resulting in a supply reduction of 346,000 ETH ($1.17 billion). 

That puts ETH deflationary by 0.161% per year.

If Ethereum were still running on proof of work, the supply would have gone up by 6.76 million ETH ($22.87 billion) — yearly inflation of over 3%. 

So, even with its recent inflationary bent, holders are still way better off, albeit slowly and slightly diluted.

— David Canellis

The Works

  • Core Scientific announced a new contract with CoreWeave which could add an additional $1.22 billion in projected revenue over the next 12 years.
  • Jump Crypto’s president Kanav Kariya, in a post on X, said that he was stepping down. 
  • Strike, the bitcoin payments app, announced that it was entering the UK. 
  • Former president Donald Trump may be heading to Nashville to speak at Bitcoin 2024, Axios reported.
  • Julian Assange agreed to plead guilty to a felony charge and will be released after reaching a deal with the US DOJ.

The Riff

Q: What role does retail play in crypto this cycle?

Retail often gets conflated with the degens. There’s some overlap, but they’re two different camps.

The degens are already here. They’re the ones trying to time the top on Pump.fun memecoins and points farming on blockchain networks in hopes of future airdrops.

Retail, meanwhile, is said to be largely absent from this bull market. Next time you’re in an Uber or on a night out, ask the people around you if they’re in crypto. I’d bet you’re likely to hear something like “not anymore, I lost too much already.”

It’s a cynical take, but if retail’s only role is buying the top — becoming exit liquidity for other investor classes — then crypto may have to get used to life without them for the time being.

— David Canellis

If we were to compare how many times I’ve written “institutions” or “institutional investors” versus “retail” or “retail investors,” the difference would be shocking. 

This cycle isn’t about retail. There’s nothing wrong with that, it’s only how this is playing out. And, honestly, maybe it’s for the best. They’re still here, and that’s pretty evident in certain areas, but they’re not the driving force.

As I mentioned above, retail was hit hard the last time around. Give that group a breather, let the institutions come in, and then maybe we’ll see it shake out differently in the future.

You can’t always be the main character. The supporting cast is just as important. 

— Katherine Ross


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