Ethereum at ten: supply, demand and the ETH ETF

Transcript

GM good morning welcome to the milroad show The Daily crypto show that's as energizing as a triple shot of espresso without the Jitters I'm your host Jay Hamilton now on Tuesday July 23rd that's tomorrow as of this recording the eth ETF goes live in the US now this week is all about eth we've got daily episodes to build your investment thesis for eth so you can confidently explain to your wife or your husband Y eth is one of the largest Holdings in your portfolio and here to guide us today is legendary crypto investor Lark Davis Lark welcome back to the show great intro it's a great intro and Happ happy birthday to ethereum by the way it's it's a pretty

um pretty momentous occasion not only has ethereum now been around for 10 years but now we've got these eth ETFs listing I mean my goodness gracious what a what a wild time to be an ethereum investor but to be in these markets as well it's incredible and it's it's all it's one of those things that we're going to look back on a decade from now and be like wow I can't believe we were in that but when you're in it it's it's hard to realize how mass of these things are and as L you said eth's 10year birthday is today can you believe that eth is 10 years old now that's eth the asset not ethereum the blockchain that is 10 years old today uh e Ico back on July 22nd

2014 and on that day you could get eth 2,000 eth for one Bitcoin 2,000 eth for one Bitcoin today one Bitcoin gets you 20 eth so and there's a great tweet that I've got up on the screen from Justin Drake that talks about how few assets have outperformed Bitcoin over that 10-year period uh and and even fewer have outperformed it by 100x so eth deserves a lot of credit here well ethereum's done incredible things over that 10-year period you know it's it's interesting I I started posting videos around seven years ago around my seven-year content creation anniversary as well and ethereum is not the first asset I bought about Bitcoin then I bought some some random altcoins xrp and M dig and my ethereum came maybe a few

weeks later and I started diving into the ethereum ecosystem the thing is it's been interesting to watch ethereum grow up because that's essentially what's happened over the last seven years of me creating content when I first looked at ethereum you could do almost nothing on ethereum except icos icos were the use case for ethereum in 2017 and some of those icos ended up being pretty interesting for example um chain link and a they had icos back in 2017 or maybe early 2018 don't remember the exact dates of them but this stuff all came out back then these were icos these giant fundraises that happened back then the vast majority of them of course as we saw with nfts as we are seeing now with mem coins were scammy right but but some great stuff came out

of that period but that was the only real use case for ethereum back then there was very little like stuff happening on chain yeah there were some very early Innovations with in nfts there were some very early Innovations with smart contract platforms like protocols like uh ether Delta ether Delta now if you never used ether Delta it was the worst possible exchange you could imagine it was so bad and it was the only B it was basically the only like Unis swap was like this Revelation like oh my gosh Unis swap is amazing is ether Delta was like I don't know going down to a burning dumpster fire and diving in hoping he come back out with some coins it was bad right shout out to

anybody who used ether Delta back in the day you know exactly what I'm talking about anyway it was but it was using spark contracts it was actually like the first really decentralized exchange on ethereum liquidity is terrible as a mess but but it started that sort of like you could see where everything was going with ethereum and in 2018 we had a bit of an existential crisis for ethereum what's going to be the next use case Beyond this see Mania that happened can we actually start catalyzing real use cases and real products and of course around late 2018 or into early 2019 that's when we actually saw stuff starting to launch on chain these lending and borrowing markets and all these sorts of things that led into 2020s defi summer and all the craziness around that so it's been wild to watch ethereum go from this this baby

blockchain looking for sort of Builders and developers and use cases to now being this just dominant Behemoth in the market and I know oh salana is coming to e to eat ethereum's lunch salana has got a lot of work to do to ethereum's lunch I mean look at the ecosystem look at the money and we're not talking about because it's not just ethereum anymore it's this just massive octopus like 100 tentacle beast that's now all these layer twos that also demand ethereum so it it's wild to see how far ethereum has come it's wild to see how far it's grown as an asset and everything that's happened over the years a switch from proof of work to proof of stake and all this cool stuff so it's been great to watch yeah it's truly incredible now one of the most important things to understand with any asset especially

those in crypto is supply and demand mechanics related to that asset and that's what today's show is all about before we jump into the elements that are most impacting ethereum supply and demand a lot of people call eth ultrasound money you hear that a lot for those who don't know where that term comes from or don't understand that term can you explain why people call eth ultrasound money so the ultrasound money is this idea of it being even better than sound money right that it is a deflationary asset in particular um where a lot of this comes from is actually website ultrasound money you can go and watch the burn going on over there and that's part of the uh Supply mechanics right is that it's a

deflationary asset now depending on where we are in the market if you look overall since the merge happened it has been deflationary not by a lot we're down like 0.37% when I took this um screenshot last week we are up a bit on the week that the 7day and the 30-day we are slightly inflationary as you can see we're trending back up towards the zero line but overall we've been deflationary and as soon as onchain activity picks up even a tiny bit we'll go back into a deeper deflation mode so this is kind of where that idea comes from that we have had this Supply burn essentially in case you're not aware of this ethereum basically has a Perpetual stock buyback mechanism so every time there is a

transaction a little bit of eum essentially is getting taken out of Supply forever now right now ethereum has an official inflation rate around 0.6% I think around there now with the deflation and the burning we you can see right around minus 0.1% so that's a significant amount of deflation it's a total of 0.7% pressure being burned off the market right so it's very interesting to watch how this defl AR mechanism has so far operated on the market because everyone talks about Bitcoin being this um you know Superior mathematical Assa and big Bitcoin fan here but Bitcoin still inflationary is g to be

inflationary until the year 2140 I ain't got time for that you won't be around anymore then unfortunately you be giving all your Bitcoin to your grandkids grandkids at that point that's right that's right okay so eth is deflationary that's one of the major impacts on the ethereum supply what are the other things that are impacting ethereum Supply the other biggest thing I would say on the supply side before we get to the demand side demand side is very interesting too the supply side I would say is the ethereum staking contract a beast of a contract a wild staking protocol that I think is generally misunderstood by most people in the market right now we have around

48 million ethereum in the staking contract wild that's that's a third of the ethereum by by the way for anyone out there counting actually a little bit more than a third right now so here's the thing that you need to understand is this is basically a giant black hole some kind of just value sync for ethereum because a lot of staking protocols you can unstake your coins and in 21 days you get your coins back and everybody could theoretically un stake tomorrow and everybody gets their coins back in 21 days ethereum is not built like that ethereum has a maximum daily limit for how much ethereum is allowed to be withdrawn from the staking contract obviously for security reasons you don't want everything to exit at

once and you have no validators everyone's in a big amount of trouble so here's the deal if you do the math if you were to try to get all 48 million eth out so everybody wakes up tomorrow and everybody wants to withdraw their eth it's going to take about 3.3 years right now so just think about that for a second this 48 million ethereum is Big Time stuck in there if even a third of that wants to exit at the market top they're looking at a year exit Q so this dramatically changes the ability of new Supply to enter and dump into the market okay that's very very interesting to to consider here because what do we see with you know

Bitcoin mining for example continual Supply coming into the market and I know we've covered the mathematics of yeah ETFs are buying more etc etc or even these big scary events oh mount gox mount gox doesn't have ethereum oh the UK government's got 61,000 Bitcoin they don't have any ethereum do they so there's also those supply side mechanics to think about too so when you start to understand how the supply of ethereum is actually working it Pates a very interesting and very bullish picture that provides a lot of let's say space for Price appreciation I'm glad you brought up price appreciation because we're going to get into your price targets for Etha a little bit later in the show but next let's talk about demand so what are the things that are currently impacting East demand so

there's two major things two really big things there's a lot of little things that we can talk about but I think the two biggest most impactful things for ethereum demand number one is layer tws and number two is ETFs so let's start off with talking about the layer twos because layer twos are this wild value ad to ethereum and I know the layer two scene can be a bit daunting even sometimes confusing or a bit misunderstood but essentially the vast majority of these layer twos there's some exceptions but the vast majority of them require ethereum to pay gas fees on chain and you need ethereum for locking it up in defi on like Aerodrome Finance on base for example stuff like this so what have we seen we've seen ethereum in

layer 2 networks go from 6 million a year ago to 12 million now over 12 million 12.5 million actually now this is an absolutely insane number because that's 10% of the ethereum supp now yeah I know that can be sold people can go to aerodrum finance or whatever wherever else they're trading on their layer twos and sell their ethereum but the fact is 12 million ethereum has been deemed worthy by the market to put into layer 2 networks to be utilized in Layer Two networks so that's a very interesting thing and what if this doubles again during the bull market we go up to 20 formul that's wild demand for ethereum for access to again a wide range of defi

products and nft products and even just paying onchain fees and stuff like that which I know are very cheap on layer twos but you still need to have ethereum to pay those fees and it still all comes back to the deflation mechanism the whole picture of the ethereum asset class so bullish on layer twos as a value ad to ethereum not necessarily bullish on many Layer Two tokens that's a whole different conversation though and the second big Point here of course has to be about ETFs which as you so duly noted at the start of the show is launching by by the time you've watched this they probably will have launched so right now we have about 16 million ethereum on exchanges um depending on who you talk to some people put that

number lower around 12 million so bit of discrepancy but depending on how different uh organizations are counting it but regardless that number is down whether 16 million or 12 million it's down 50% more than 50% actually in the last three years and you can see the the purple line on the chart there show how fast we have seen ethereum being taken off exchanges in the last few years and what's Wild is this is right through the bar market right through the bar Market I know we had some some sort of uh peak sell-offs in 2022 when people sent some e to exchanges to get out before the market went bad all that kind of stuff but then look from late 2022 right through 20123 right up to now it's

been nonstop accumulation non-stop taking ethereum off of Exchange es so that all fits into the picture of ethereum ETFs because what happened with Bitcoin we need to look the Bitcoin ETF because it's really the best example we have right now for how a a mainstream crypto product is going to perform now ethereum is not as much of a household name as Bitcoin is but I think within investing communities it's definitely a known asset right we're not going down to random cryptocurrency number 200 or whatever on the coin market cap we're talking about ethereum this is the second most important asset in the cryptocurrency Market on any given day is worth about 20% of the total cryptocurrency market and if you

account for its wider ecosystem accounts for a gigantic percentage of everything built in crypto so Bitcoin ETFs they saw have seen so far in about the first six months of trading around $17 billion in total net inflows that's a lot of money now those initial inflows were able to push the price of Bitcoin from $46,000 to $73,000 in about 6 weeks after launch I know on day one there was some kind of you know a bit of a selloff on day one price Bitcoin went down 78% or something first day trading was oh see was still the news now it's going to go to zero no no no no now we have billions of dollars flood in from Wall Street which is exactly what happened so will we see

something similar playing out here will we have a third of the inflows because we have $5 billion doll of ethereum bought in the next six months that's a significant number considering everything else exchange volumes falling demand going up on layer twos and everything else we've talked about so far here that has real explosive price potential to see such a massive amount of accumulation potentially happening from these ETF products so how much it moves the price remains to be seen but it's definitely going to be impactful yeah when you say five billion you're not throwing out a random number we had Matt Hogan from bitwise on the podcast last week and that is his exact

prediction is that we'll have 5 billion in eth ETF inflows in the first 6 months and go back and listen to that episode if you haven't listened to it because he breaks it down beautifully uh Lark when we look at eth from a portfolio allocation P perspective from a investment thesis in terms of price predictions or Price targets what are you thinking right now and over the next six 12 months in terms of portfolio allocation it's interesting you know I didn't necessarily plan it like this but if I look at my portfolio it approximately breaks down to how the crypto Market breaks down about half Bitcoin 20% ethereum about 30% altcoin so it's it's interesting uh from that perspective how much ethereum anybody

should have I don't know but when I look at ethereum as an asset and why I remain bullish on it why I think that it's going to go over $10,000 this Market cycle and I actually think that our Market Peak price assuming that the cycle works out as we hope that it's going to that the peak price for ethereum could be somewhere around $15,000 perhaps even pushing at the peaky peak top for that day that moment that second the one guy who gets to sell it for like I don't know $18,000 per coin then it goes down but I would I would look at personally selling anywhere over 10K as being a pretty good deal now I've been in ethereum for years I've got I would say gosh I'm not exactly sure I've messed it up so so much over time by swapping back and

forth like wrapped ethereum and it screws up your cost basis like officially but even though you're not technically changing anyway but um I'd say my I accumulated a lot of ethereum around 200 and 250 bucks back in the day and so if I can sell that for $10,000 I'm gonna be a happy camper man I really will be that'll be fantastic and look if we see it go to $15,000 which generally lines up with actually fibonacci's 3.68 lines a little bit above that so again around 15K I think would be an interesting area for like a very high Market Peak price but personally I think anything above 10K is going to be a decent an area to uh sell you got to think okay it goes to 10K and you miss out selling at 15K just as an example well you've only missed out on 50% of

the gains depending on where you bought your ethereum right it could be a really good time to start considering taking some profits on the market because you know at the end of the day bullish on ethereum is definitely one of the assets I will Reby in the next bare Market but I'm also bullish on money and profits so those ditto ditto what about uh eth beta plays in your portfolio or other eth assets that you hold whether it be l2s or mem coins uh what do you what do you like in that space sure I think one thing I could say about the layer twos is that bullish on layer twos as a technology not super bullish on layer twos as an investment and I think

arbitrum has been a great example of that it is has been until coinbase launched was the most bullish layer to and and it's still one of the leaders in the layer to space obviously and incredible things have happened over there and none of that value that has been created in arbitrum they've created massive value none of that value has gone back to arbitrum governance token holders because it's at the end of the day a useless governance token has almost no use on chain it's not used in any arbit from defi almost at all um there's no staking rewards there's what are you gonna do you gonna spend 5,000 bucks get your ARB tokens and you're going to go govern the platform good luck with that buddy the whales are going to run it anyway your opinions irrelevant and is that really what you want to spend $5,000 for $10,000

$100,000 to go govern arbitrum no you don't no you don't you want to make money so from that perspective I don't see a lot of Layer Two tokens as being great Investments per se there's some that do capture let's say some more value and some more interest maybe a shout out to like mantle for example I think they've been doing a lot of stuff but they're not using a theum on mantle they're using the MNT tokens so it's capturing more value because it is nebra fees etc etc etc so it's a bit of a different use case bit of a different idea there but in terms of things I'm quite bullish on anything Bas related Bas doesn't have a token and I'm not sure that base needs to have a token they really don't and I'm not sure they ever will it'd probably be smarter for

them not to have a token to be honest because they just don't need to have a token now will they launch a token someday I have no idea but right now I think if you look at the base ecosystem I'm speaking on my own bags here these are coins I own in my portfolio obviously guys do please don't just because I mentioned something don't go around make your money into it okay but I'm holding what I think are some of the biggest bets for base exposure right so I think that the layers who seen in ethereum is definitely an interesting area to be allocating money to just not necessarily those Layer Two tokens themselves so like aerodrum Finance the biggest decentralized exchange on um the base Network right now uh I've got Brett in my portfolio the biggest meme coin on

base right now it's getting a lot of TR a lot of traction a lot of organic traction uh I've also got um you know some more speculative bets and like Benji the dogcoin of base and we added a tiny bit of M miggles to the portfolio for our 10K portfolio challenge so we'll see how that cats I don't know not the biggest cat fan in the world we'll see how that goes but these kind of beta plays within the ethereum wider ecosystem I think on layer twos base in particular other layer twos we'll see I think there's going to be some real standout uh coins on some of those other protocols you know you might look at um Linea right very strong connections to the entire ethereum ecosystem they'll probably release a useless governance token that will all farm and drop it'll

be great but then you can look at some within the Linea ecosystem maybe the foxy mcoin for example maybe that's something that'll do well if Linea does well as an example so these are kind of how I'm thinking about ethereum beta plays right now I know there's the the old the old guard of like ethereum Defi and stuff like that and look I think if ethereum does well probably like OG meme coins on ethereum like Pepe might do well right and you'll see stuff like maker and a do well and these what's interesting too about just as a quick aside stuff like maker and a these are real protocols with real revenues the most powerful impactful protocols in the damn in the entirety of the cryptocurrency market like look at maker

Dow it's worth3 billion dollars or something today and pepe is worth four billion which is just a picture of a frog just a frog picture maker Dows over here but we're working with black rock and a billion dollars in real world assets and we're one of the most important protocols with positive cash revenues of millions of dollars a years nobody cares they need to CH much like my advice to chain link CH change your uh logo to a dog picture my advice to maker change your logo to a cat picture boom boom I solved your marketing problems you're [Laughter] welcome oh my gosh it's it's sadly true there is H so much nonsense in the way Investments work not just in crypto in

in all Investments all assets around the world uh great great advice Lark appreciate your takes on ethereum and the broader ecosystem uh I want to move off of ethereum quickly just to talk about some big news that happened over the weekend which was Biden announced that he will no longer be running for the president again now we're not a political show so not looking to discuss the political implications of this but as we discussed last week with you when we reviewed the top Catalyst for 2024 the US election is one of the largest catalysts not just for the crypto Market but for all markets as a a whole what was your reaction to this news over the weekend I think it's interesting that the market and I mean

everybody's kind of expecting it the market didn't really care we didn't really see very much reaction at all from the market as opposed to um the Trump assassination attempt the Market's pumped like crazy afterwards because everybody thought well this is it you know that's we're going to get Trump as a president and he's going to do all these positive things for the economy positive things for the crypto markets C etc etc whereas with Biden it was kind of like yeah we all knew he was probably going to drop out anyway you know the writings on the wall for a little while now the the question becomes and not to get too political but the question becomes is who's going to end up being as for crypto voters out there if we talk about single single issue voting I know call politics is complicated and there's a lot of reasons to vote for

people not vote for people but I think if we continue to look at the single issue of crypto it's pretty obvious that Trump's put himself very much in that very Pro crypto camp and that a lot of crypto money has got behind the Trump campaign whether that be you know Bitcoin money he's literally speaking of Bitcoin Nashville this week and all the other stuff coinbase has been lobbying with him they've got packs supporting him stuff like that because the truth about the Biden presidency is has that has been a rapidly anti-crypto White House from operation two choke point 2.0 where they secretly tried to strangle any banks that worked with crypto which is gross to what the sec's been doing going after coinbase

going after Kraken are you kidding me these are the squeaky trying to push all these companies out of America it just doesn't make any sense from a strategic perspective from a tax perspective from a business Innovation perspective it's like the equivalent like oh this new new fangled thing called The Internet's out here let's crush it make sure that America doesn't have any internet companies it's so it's so behind the times and so my thought would be is that whoever they decide to put in to replace Joe whether that's going to be Kamala or somebody else at the convention it's going to be a new face with the exact same policies right unless this person comes out and says I am wildly Pro crypto and we're going to do all these things for cryptocurrency holders we realize that it's one in five Americans it's a giant voting block etc

etc and I just don't see that happening because look at the proof in the pudding right where where have Democrats parties the Democratic party been on crypto issues they've been strongly against crypto issues so that's my take on it yeah I think uh that's probably the likely scenario in case you missed it here's what else happened in crypto news today but first first thanks to our sponsor agoric ever wish your crypto apps played nicely together like your favorite web apps agoric is making that a reality our sponsors are building a seamless D5 future and the coolest part it's all powered by JavaScript that's right the language you already know can unlock the future potential of web3 head

over to a gor.com EAP and join a gor's Early Access program to start building the decentralized future also in news today Mount gaau the infamous crypto exchange that collapsed in 2014 after losing a massive amount of Bitcoin has transferred a small amount of Bitcoin 0.21 to be specific to a new wallet blockchain analytics platform Arkham intelligence which we just had on the show identified one of the recipient addresses as belonging to bitstamp a centralized cryptocurrency exchange now this small transfer signals that mount goau might be gearing up finally for a r pound of payouts to its longsuffering

creditors bitstamp has previously stated that it would distribute its allocation of portion of the Bitcoin repayments to mount go creditors as soon as possible that's all for today folks thanks so much for listening in and have a wicked awesome day thank you for listening to milk Road radio the easiest path to get smarter about crypto if you like this episode share it and hit subscribe or follow so you don't miss out on the next one there's also a link in the description to a free 5 minute daily newsletter where we simplify crypto for you while making you laugh and if you're willing to step up your crypto investing game then we'll leave a link to milk Road Pro as well your number one resource to help you invest successfully in crypto one final note this podcast is

for educational purposes only and nothing we say is financial advice crypto is risky so you should never invest more than you're willing to lose thank you friends and we'll see you in the next one