ETH is the new Bitcoin

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🌐 ETH is the new Bitcoin

A big week for crypto

Sorry this is a day late. To be honest, this week's post wasn't supposed to be about crypto at all. I was wrestling between Private Credit and De-Dollarization.

But then, the crypto world had a big week.

FIT21 was approved by the House, with 71 Democrats voting for it.

Last week SAB121 was disapproved by both houses of Congress. Initially, the President said he would veto the objection, but with has since changed his stance.

Then we suddenly had an ETH ETF approval from the SEC.

So here we are...talking crypto ETFs again.

In this post, I want to address the differences between ETH and BTC, which could lead to differences in the adoption of the ETFs. We'll also discuss the future of crypto in the US based on the regulatory and legislative happenings.

Last year we created some videos highlighting the investment theses behind bitcoin and ETH.

Here you can find the playlist.

While most people think of them as "crypto" investments, they can occupy different parts of your portfolio.

Bitcoin

As we've talked about over and over, bitcoin is a store-of-value. If you're at all concerned with inflation. If you're seeing your grocery and gas expenses go up. If you think there will be more money-printing.

That's where bitcoin fits. It isn't necessarily a crypto allocation, but a hedge.

That's why we see pensions start to invest. They're trying to offset future outflows.

We know the issuance policy of bitcoin - only 21 million will ever exist. 450 new BTC per day for the next 4 years, then the new supply gets cut in half.

Pretty simple

ETH

The native asset of the Ethereum network is much different.

It's used to pay for transactions on the network. So if you think there will be more transactions on the Ethereum network in the coming years, the demand for ETH should increase.

Now to the supply. New ETH is created with every block - about every 12-13 seconds. That ETH is given to the validators as a reward for processing transactions and keeping the network moving forward. There is no limit to the supply.

However, with each block, some ETH is also burned - taken out of existence forever. The amount burned is based on the number of transactions in that block.

When the usage of the network increases, we burn more ETH than we create. Supply goes down!

Increased demand + decreased supply + price goes up.

Now we're adding demand from ETF investors looking for an easier way to get exposure to ETH.

To get a great idea of the value of ETH, I recommend following Michael Nadeau, subscribing to the DeFi Report. Michael has created the Ethereum Investment Framework. He uses blockchain data, coupled with more traditional valuation techniques to come up with a framework for valuing ETH.

A by-product of the ETF approval is that the SEC is implying ETH is not a security, but a commodity. This allows asset managers, builders, investors, and founders to breathe a little easier. No worries about ETH delisting from exchanges like Coinbase and Kraken.

ETH can fit in a portfolio as a tech/growth investment. Think of investing in Amazon in 2003. The Internet hadn't matured, but Amazon was just starting to build the dominant platform. We didn't know how to value it then, and I see the same for ETH now.

Several weeks ago we talked about this bottom-up allocation to BTC and ETH.

Regulation and Legislation

This past week showed a potential thawing in the US legislative and regulatory camps. Elizabeth Warren, Gary Gensler, and their anti-crypto army have been trying to crush crypto in the US. It seems the courts and Congress are pushing back...finally.

Congress expressly challenged the SEC's authority by knocking down SAB121. Now, banks will have more ability to custody digital assets. For institutions and investors, the stability and regulation of banks as custodians is helpful toward more investment.

Democrats in the House and the Senate also broke ranks with Warren and the administration. And we saw the votes coming from younger members of Congress.

This bodes well for progress in legislation, as we'll need bi-partisan support.

We also saw FDIC chair Martin Gruenberg step down. He has been ardently anti-crypto.

We'll see more stablecoin legislation come before Congress, and without staunch opposition, may see some forward movement.

Stablecoins have been a huge success already. Adoption by banks and the banking system will drive more Ethereum use, and ETH demand.

The ability of banks to custody digital assets, at a time when companies like BlackRock and Franklin Templeton are launching tokenized funds, will only increase their adoption. Again, more Ethereum use and more ETH demand.

I'm still up in the air on FIT21. It likely won't pass the Senate. However, more Democrats in favor of positive crypto legislation is a good thing.

It was a pretty good week in the crypto world. Everyone is flying pretty high, going into the biggest crypto conference - Consensus.

I'll be posting from there, where we're hosting the FA/RIA day.

Maybe next week I'll get to write about something other than crypto. For now, I'll take the positive news.

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Have a great week

Adam