Das Triangle

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Bitcoin ethereum ratio, July 2019

Ethereans are a bit on edge over the bitcoin ratio which has been sort of sidewaying for months, with a breakout potentially imminent either up or down.

A massive continuation triangle appears to have formed as pictured above over many months.

ETH/BTC ratio, July 2019
ETH/BTC ratio, July 2019

Ethereans are hoping for that green run in December/January 2017-18 to repeat itself at some point, arguing it was the same last time when eth stood at $300 and then finally jumped.

The chart from back then, however, looks a lot different than now. You can see eth was rising in that first big jump in spring 2017. Then it had a correction, while at the same time its rise propelled bitcoin to rise.

That correction looks like a pretty quick downwards fall with a very sharp V recovery in the hope eth would keep the music on in January 2018.

So then we have a somewhat sharp fall up to late last summer, and then pretty much no movement for now many months.

What happens next is anyone’s guess, with the last candle looking pretty interesting, but what happened to this point, why is eth slacking?

The ETH Deflipping?

ETH was riding high based on its smart contracts, ICOs, quite a bit of innovation, with much of that still going on.

What has changed is another main reason it rose: capacity. Estimates were eth would be able to handle about 14 million transactions a day. As it turned out, it could only do 1.4 million.

As in bitcoin, so too in eth miners refused to increase capacity any further because the network had reached its technical limit at that point.

Still eth was to get Hybrid Casper which was to reduce issuance by two thirds. That was abruptly canceled, surprising the market and shaking confidence.

As a carrot, devs offered a reduction of issuance by 1/3rd, but the decision making process around that left much to be desired, with the reduction implemented only after the difficulty bomb forced the matter this February.

In the meantime as the scalability debate had ended in bitcoin in late 2017, they moved forward with Lightning and many other compressions at the protocol level.

Slowly therefore calculations began to change as bitcoin started becoming more advanced where it concerns the killer app: value transfers.

There was movement in eth too with protocol efficiencies reducing uncles/orphans by quite a bit, but miners still haven’t increased the limit.

There’s ETH1x with rent storage and potentially pruning, but when either hopes to be implemented isn’t very clear with a proposal to change the algorithm, which looks likely to be implemented, taking much attention instead.

Then of course there’s the ETH2.0 stuff, but from an investment perspective that might be more of a stick than a carrot to begin with because issuance might increase once PoS goes out around January.

There is a maybe, perhaps, suggestion that issuance might be reduced by 10x in 2021, but that presumably implies the PoW chain would be discarded which is quite unlikely to be by 2021.

Realistically the above would at best be last summer’s 2/3 reduction which can be implemented in that time frame.

Bitcoin, of course, is not standing still. Instead of playing with the algo, they’re focusing on Taproots and many, many, other things that slowly and gradually increase capacity through all sorts of data compression methods at the protocol level and of course all the second layer stuff.

In addition unlike debates where turkeys are asked whether they agree to Christmas, bitcoin has a protocol level determination of issuance that doesn’t care about who agrees or doesn’t as code is law.

That code says issuance and thus inflation will be halved in about ten months, falling for the first time to around the same level of yearly inflation as the dollar or the euro.

Assuming demand remains constant, then the reduction in supply should lead to an increase in price as the asset becomes rarer.

If demand instead falls, then price would fall by less than otherwise because there is less supply. If demand instead increases, then price should increase a bit quicker than otherwise.

Making it a very big carrot for bitcoiners, while for ethereans we don’t even know whether they’ll get any sweeteners at all or just a stick with a slight issuance increase as these things are not decided by the code, but by devs who sometime appear to be annoyed for even being asked for clarification.

Ethereum, of course, still has plenty of uses, but arguably the biggest use case is still value transfers in a permissionless manner, peer to peer cash, and there bitcoin is clearly most used; moving $26 billion in the past 24 hours, while eth moved just a billion.

As bitcoin’s market cap is currently some 10x that of eth, when in summer 2017 it was nearly at an equal level, the market clearly thinks bitcoin is doing something better.

That something is presumably the store of value component of money which is assured by code based rules in a countdown to a fixed 21 million limit.

That’s a very unique thing which has previously never existed and as it stands it is something that eth does lack.

Where eth compensates is this whole open finance thing, but paying 20% to borrow your own money at a 300% collateral is obviously a very niche use case.

Sharding could change the game, but at least initially due to limited cross sharding communication there would be different dapp universes. Meaning it would come with some tradeoffs.

All of that further shows scalability in a trustless way, and thus in a permissionless way, is a very hard problem.

It will eventually probably be solved, but eth will not do so for at least another two years and whether it will be able to solve it at all remains to be seen.

In the meantime, slowly but surely bitcoin is moving and by sort of tinkering at the edges rather than by some sort of committee deciding to change algo or issuance or to cancel their own proposals days after they say it will go live imminently or deciding to come up with a complete redesign of the whole thing by pretty much throwing out the current blockchain.

That said eth is much younger than bitcoin and is trying to address a pretty hard problem which they may even be able to solve.

In addition there’s smart contracts and there’s plenty of potential for eth, but arguably it’s a more risky bet at least for the next two years especially considering the bitcoin halvening and some of the nice work they’re doing on data compression.

Meaning bitcoin is back, in innovation too. While whether there will be an eth comeback, remains to be seen.

Copyrights Trustnodes.com

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