ETH Is Soaring and Close to ATHs. How Long Will the Rally Continue?

Transcript

Ethereum's flying, Bitmines's exploding, and DeFi is getting a real credit market makeover. In this segment from the Bits and Bips podcast, I'm joined by Rahm Alawalia, Alex Krueger, and Sid Pal to unpack what's really behind ETH's rally. Is it regulatory clarity, treasury inflation? We get into all of it. And hey, if you like content like this, make sure to subscribe to the channel. To kick it off, here's Rahm explaining why Ethereum is the cleanest expression of the stable coin trade right now. >> So on Ethereum, look, I think the main story is that it is the cleanest expression of betting on stable coins.

And we talked about how the backdrop of Ethereum with a tremendous amount of short pressure. Some of that was caused by kind of basis trades, but it was hated. It was non-conensus. Uh and also had more momentum off the bottom than other assets. uh and that backdrop combined with the news catalyst uh starting off with Treasury Secretary Besson saying that we're going to have a trillion dollars potentially in stable coin funding uh and then the Genius Act which benefits Ethereum. Ethereum has the most stable coin activity. Um you know Bitcoin story by the way is electronic peer-to-p peer cash. That is what a stable coin is.

That's what a stable coin is. Stable coins have fulfilled on that promise. Um and so I think for those reasons, Ethereum has benefited, right? You think about the the regulatory clarity that has arrived and is coming uh through the clarity act and what um SEC chair Paul Atkins is saying. Who benefits most? Well, Bitcoin we knew was a commodity before. It's still a commodity. It will be a commodity after. We always had clarity on Bitcoin. It's Ethereum that is benefiting from this backdrop and also the fact they have all these treasury companies now that are axed to go buy Ethereum and build the next micro strategy.

>> Rahm just just a quick followup. Um I I think a lot of us are familiar with some of those big narratives. I'm curious about the follow through. I mean I I know that Ethereum recently hit I think an all-time high on daily transactions. Uh, I know that there's some more activity occurring on the platform. I'm interested in your research if you've seen any of that sort of like carry over and and if there's um like if there's a story that you can tell on what people are doing on Ethereum that can kind of explain um just explain the price. Uh >> there's some interesting well so funny thing about it by the way is like the best time to buy digital assets and especially Ethereum excuse me is when the funding costs are are low. That's the main thing, you know, when it when

transaction activities are low and and gas f gas costs are low, that's actually the contrarian buy. That's the contrarian buy point. When the demand for the asset is high and funding rates are high, then you have to start opening your mind up to the possibility of a rotation. You have to ensure you ride the rally. But I think one of the areas that's super interesting on chain is how Maker has repositioned into Sky. I don't know, Alex, if you've looked at that or Sid too. I think it's really interesting. So DAO kind of the one of the OG protocols on chain and if you haven't read the maker paper you all should read it. I think after the Bitcoin white paper it is it is kind of incredible piece of innovation this idea

again of a decentralized central bank which I find quite fascinating. >> You mean the original maker? >> The original maker the original maker paper. Yeah. It's like a >> I haven't read it. >> I think it's an incredible incredible paper. I mean it's that's where we're going now. Like what follows the growth of stable coin? Well, DeFi, DeFi is the logical beneficiary. Uh, but makers have been repositioning uh they rebranded to Sky uh and they're they're launching call it like mini pods. I almost want to liken it to like a pot shot and Millennium except instead of trading equities, you're making uh credit investments. And I think what what Sid is doing with Maple is kind of related. It's in this kind of the same concept space. But that's what we're seeing, you know, primarily on chain.

And I don't know, Alex, if you're seeing anything else on chain, I'm I'm primarily looking at asset prices and funding rates, but onchain activity, I thought that was worth calling out. >> I uh I can talk a little bit to the um to the you know, the the maker sky ecosystem. Uh so I think uh you're you're spot on, Ram. It's uh you know, it's it's acting kind of like a central bank. And then they almost have you can either call it uh kind of a a pod shop model similar to Millennium where they have their stars which uh in turn are kind of asset managers seeking yields.

The other way to look at that is you almost have the central bank and then you have commercial banks. And so the stars can can also be likened to commercial banks. But one of the ones that we work quite closely with is is the spark team. and uh they uh so they allocate onchain and then that we Maple actually has a partnership with them where they're they're one of our largest allocators into uh into our syrup product. So we have about call it um half a yard with them and uh in effect the problem we solve for them is is how they can access higher yields by dealing with institutional clients because we lend to to institutions uh offchain and um and then the the other useful thing

that uh that is in kind of in place for the Sky ecosystem is that they they solve this kind of principal agent problem. So if Sky was allocating directly to us, they can't be sure of the credit quality, but by having this intermediary that's almost like a fund manager, Spark, um they're able to kind of address the principal agent problem. They keep us honest and then we and then we go and allocate and if we're not performing up to scratch, they can always allocate elsewhere. But I think it's it is really one of the most interesting ecosystems on chain today. >> Excellent summary. And one thing I'll add to that is the way they align incentives is to risk retention namely first loss risk is born by the manager which incidentally was the response to 2008 crisis in terms of how the

DoddFrank regulation came out. >> The issuers of Asback securities are obligated to own first loss risk at a minimum of 5% >> or vertical stripe of 5%. So it it is funny how crypto's done so much speedrunning of the banking system and then they you know they discover what what delegated governance is or delegated authorities are and you know alignment of incentives and risk retention but I think it's very very creative in it. Yeah. >> All right Alex what what are you seeing? I mean right now one question I know with the total amount of a lot of retail investors watching this is uh ether I think I saw a statistic 97% of all ETH positions are in profit which makes

sense at this point so there's a lot of fear about a local top and selling u is that something that they should do >> I I wouldn't and I'm not doing it um I mean it's all about ETH right now and and uh I don't think uh I I have uh a different view than you run a little bit different. Uh it's not really about stable coins or the Genius Act and all of that. That's that's that's a good narrative. It's about flows. Uh it's about uh Zvet and Bitmine and and Tom Lee and and uh I mean these guys they've accumulated so far. What do they have?

Uh Bit Medal has 3.6 6 billion uh dollars uh that they accumulated since uh uh what is it since uh early July like five weeks. Uh it's it's it's it's really impressive. So it's it's a flow story. the the genius act, the stable coins, uh the fact that ETH is basically uh what is used, this is the narrative, E being used for securing X amount of dollars on on on chain. I think it's a great narrative, but it's it's not really what drives the price. Um and uh that being said, I don't see uh any reason for this to stop, at least not just yet. I think it has at least a few more months of of

very high flows. And uh and >> Alex, do you think those flows are going to be driven by the the kind of the treasury companies, the debts? >> Yeah. Yeah. Yeah. Yeah. Yeah. It it's it's mainly by uh Bitmain and and Spet, those two. There's a few new ones coming out, but I think we're at the stage where the winners the the winners are already out there. >> There's a machine, too. And by definition, these are all performance chase. They have to buy if it goes up. >> Like what are they Is that accurate, Alex? I think that's correct. Like, if the Ethereum price goes up and they've got excess liquidity, what do you do? I mean, h don't you have to participate to some extent?

>> Well, what matters is the uh the the the MNAV of going going above one, right? Then then you can print to buy more. And >> that's the decision. >> I mean, it's a typical pon if you think about it. But uh >> but I welcome it. I mean, then I'm not going to be criticizing something that works, right? Here's the question. >> Yeah, >> I was What do you make of the divergence in the MNABs between Sharp Link and and Bitmine? Because I I saw earlier today Sharlink is close to almost one at this point. Bit mine is is I think over two. I think it's a matter of salesmanship and how and execution and management and and something else is is for example Bitmine is uh and I would I would have to guess it has to do with with Tom Lee

being uh um I mean Lee it's he's he's from Korean descent right bit mine is extremely popular in South Korea among traders um I was just reading an article about it on Bloomberg >> I agree with Alex's point on flows always about the flows I think narrative also a follow price. But I think you could see the backdrop that built up toward this. I do think that tactically though, if I just look at ESB and Bit Miner today, just technically they're overextended and you know, they have what I call inverse wicks and the candles aren't that like I wouldn't buy here. That that's a tactical view though. That's a tactical view of like

one to five days. That's not a a midterm month