Christopher Burniske, a partner at Placeholder VC which appears to have invested in both bitcoin and ethereum as well as other cryptos and projects, says:
“$ETH is enduring its 1st mainstream bear market, just as $BTC did in 2014/15.
In retrospect, 2014/15 was the best risk/reward period for investors to get BTC exposure.
To objective observers, the network’s momentum was clear despite the bearish price action; those pre-disposed to dislike based on perceived vested interests, were blinded by biases & missed the bus.
What happened to $BTC then is happening to $ETH now. #StackSats, #EarnETH.”
Ethereum has been in a two years long bear market with it down 32% over last year. While bitcoin might have gotten out of its own bear market with it up close to 60% over last year.
Ethereum has not quite been following nor leading, with the correlation between the two not that high in recent months because the eth/btc ratio has basically crashed.
That’s due to eth specific factors, with the network going through what perhaps can be called a crisis of confidence.
That’s pretty much what bitcoin went through in 2015, with a theory stated for some time that ethereum is doing what bitcoin did in its early days.
If it is true, that presupposes eth would rise to $20,000 as bitcoin did in 2017 after crashing to about $200 in 2015.
That’s of course not easy to believe, but it’s a good opportunity to undertake some analysis as we see it.
The Case For
There have been no formal studies to show eth’s growth has been similar to bitcoin, but from observation the peaks and the lows have been almost identical.
Our theory is that’s because it’s how awareness spreads. Getting your head around bitcoin is not easy, so you need to have a look at it twice or three times. Then, presuming you’re excited, you might perhaps on some rare occasion mention it in some conversation, so thus creating the second, third wave and so on.
Likewise getting your head around eth is not easy. Like you can just dismiss bitcoin as a stupid internet thing, you can dismiss eth as just bitcoin.
After a few mentions though, you might have a look and see it is actually a bit different. Presuming you get excited… and so on the story repeats.
Here we’re still sort of in the west. If we look at the global picture, we can generalize by region. America and UK, as well as Australia, Canada and presumably New Zealand, have led. With all five sort of being where awareness first spread for bitcoin and eth.
Interestingly then you move to Asia. For bitcoin it was China, for eth South Korea, but really that sort of region with Japan too and surrounding areas.
Perhaps continental Europe at the same time or maybe slightly later, then off to Africa, and Latin America happens to be last.
That may be because Africa has a fairly big english heritage. South Africa, Kenya, even Nigeria. So awareness gets there first, while Latin America might take knowledge more from the Spanish/Italian/French world.
All of this is generalization and some of it might be wrong, but it’s a rough picture of how knowledge spreads over years.
For bitcoin, it is Latin America that is now learning about it in part because of much monetary mismanagement there as well as Africa where awareness is spreading.
For eth it appears to be the balkans as of now according to google trends. From there then presumably to Turkey and then Arabia and Africa.
Then obviously within each region awareness presumably continues to spread to various degrees, but generally this is how it first spreads globally.
That theory of awareness can be perhaps even a wholistic explanation of why eth seems to have followed bitcoin so far. The question is whether it will necessarily continue to do so?
The 2015 Background
The gradual spreading of awareness, and just what one is becoming aware of, can be very different things.
One is form, how it moves. The other is substance, what is moving. What moved for bitcoin in 2015 was a split among developers almost in half to begin with.
Two prominent and very loud devs, with their own dev and non dev supporters, argued the blocksize must increase to meet demand.
The question was by how much. Why 8MB and not 4, or 2 with an algorithmic percentage increase. The proposal the two devs set upon, Gavin Andresen and Mike Hearn, was 8MB, doubling every 2 years until 8GB blocks in two decades.
Two prominent and very loud devs, with their own dev and non dev supporters, argued there is a trade-off to a blocksize increase. One must go slowly.
They focused on that 8GB number, with miners so going to what then was the middle. 4MB, doubling every 4 years, until 32MB.
Hearn “rejected” it, telling them to go code their own client if that’s what they wanted. Gregory Maxwell and Peter Todd (again we are generalizing, but taking them as “representative” of the small blocks) sort of gave the miners what they wanted.
They came up with Segwit, an increase of up to 4MB in worst case scenarios, with other increases through compressing data and so on, and obviously the Lightning Network, and also later-on a plain increase by changing the blocksize equivalent parameters.
Having persuaded the miners, in February 2016 they signed a document that bound them to only run the Bitcoin Core client.
At that point the debate was over, big blockers had lost, but they were not going to concede. Miners try to keep both sides happy through inaction. The two sides get more and more agitated, with this debate then spreading to other cryptos.
Those who were unhappy with small blocks started looking for an alternative, landing on eth. They probably thought smart contracts are cool, but what probably persuaded them the most was eth’s stated plans to scale on-chain.
The ETC split in 2016 had its reasons, but was probably also a continuation of that debate with Barry Silbert invested in Blockstream. A hardfork was one of the main arguments against increasing the blocksize, so showing it was messy was probably ETC’s aim.
That settled little however with the two sides continuing their arguments with miners continuing to try and please both, until both sides got a bit fed up, so small blockers threatened a unilateral soft-fork while big blockers chain-split hardforked to BCH.
Why Bitcoin Roared
Many reasons. The rise of the blockchain. The fact bitcoin took credit for everything because that was the only one people had heard of, and the fact that blocksize debate, while somewhat ugly from the inside, must have looked pretty cool from the outside.
You had these people arguing over something, these disagreements, this new world really where topic like governance and whatever where being discussed in regards to money, and they call it the people’s money.
Can it be controlled? Is it true Blockstream runs the show? Is that just rhetoric? What are they even arguing about, and what is this bitcoin anyway?
As things moved towards the August 1st chain-split, there were discussions on what would the ticker be, the name, even the color of the logo, and the price.
Small blockers obviously wanted to make it as messy as possible, big blockers worked to make it as smoothly as possible, while others were thinking things are happening here, so the world stood to watch.
On August 1st 2017, the historic chain-split to BCH arguably showed that bitcoin can not actually be controlled. It also showed there were decision making mechanisms, and also that the people in general were ultimately in charge.
Thus bitcoin roared as the world looked at this very new thing and as arguably it was proven it is actually decentralized and it is generally what it says on the tin.
Great times, with a pretty festive atmosphere then developing as the market judged it all to be good.
The Case Against
Things then got back to earth and there’s many places to start that story, but ethereum hitting the capacity limit and the miners’ failure to increase their version of the blocksize is a good place to start.
That was in December 2017. While in bitcoin there was plenty of shouting at miners and lots of blocksize debate, in eth no one said a word, not one dev asked miners to increase the limit.
Gradually then it became somewhat clear they were not quite working on scalability. That changed in the middle of 2018, but it came at the expense of scrapping the Hybrid Casper which was days from going on main-net.
It was scrapped because priorities changed from getting Proof of Stake (PoS) out, to sharding – eth’s in development scalability solution.
No one said a word about that change either. Well, among devs. Some investors whined, some probably sold and left.
In the meantime in bitcoin they got the Lightning Network out, which isn’t working great, but it’s moving.
In eth, little is out yet, with sharding estimated to launch in two years, which in this space is sort of decades.
So looked objectively as Burniske says, because eth is currently at full capacity and it’s blocksize is just as limited, arguably it’s no different than bitcoin.
There are the smart contracts, of course, and defi, and zksnarks, and things are happening, but the killer application of crypto as it stands is moving value. Bitcoin moves that value just as well as eth, so arguably there is a realization that bitcoin’s problems are just as shared with little actual solution at this stage.
In the future of course there are trillions of solutions planned, by bitcoin, as well as eth and other cryptos.
As it stands, the question is which of those solutions will actually work and are they actually much different?
The scaling idea in bitcoin was sidechains. You connect new chains to the bitcoin chain. How? Well… that’s the question.
You have a peg as they call it. You lock bitcoin on one end, and you get bitcoin on the other end. Easy. So how do we get this bitcoin back?
Well, you don’t in a decentralized manner for now. In eth, you don’t at all. You burn your eth, and get some printed eth on the PoS chain. They probably couldn’t figure out how to get that PoS eth back to the PoW chain, so it’s one way according to what they’ve said.
That raises the question of whether sharding will be actually decentralized, or decentralized in name only, because how is this eth moving from shard to shard, and then back.
It probably can be done, but then it probably can be done in bitcoin too with devs there working on all sorts of new codability features.
With two years to go and with bitcoin having an excellent team of developers, as does eth, who will get there first remains to be seen.
As bitcoin has been around for much longer, it may well be ahead because they’ve considered these matters for longer.
There was a pause during that blocksize stuff, but now they can move full speed ahead, and they are moving.
Scalability, or which can move most value while being decentralized and forkable by anyone as bitcoin was or even eth was, is of course the main question.
Other things arguably are nice to have. Like credit card level interest rates despite putting down 300% collateral. Collectable kitties that translate to just some ID being decentralized without any actual link to the graphics.
But there are also cool things like decentralized exchanges or tokenized stocks. A lot more cool things can be developed, but that applies to both bitcoin and eth.
So the case against eth following the same trajectory as bitcoin is because eth is arguably no longer technically more advanced than bitcoin when it comes to current capacity and potentially future capacity because if they can figure out two way pegs, then bitcoin can just incorporate it. Without figuring that out, it’s not clear how sharding would work beyond running all the nodes which is a bit similar to just increasing the blocksize.
For bitcoin, hitting the limit didn’t quite matter because there was an argument around it, people were trying to figure out how to solve it, and the public probably saw that it’s new tech, so like all new tech it is very clunky to begin with.
For eth, the question is why not bitcoin. The answer was because it is far more scalable, but as it turned out its blocksize was just as limited as bitcoin and scalability is just as much a work in progress as bitcoin.
Yet in 2015 the question was why bitcoin. Likewise in 2015 there was some sort of disillusionment with BTC, there was the turning against merchants who just sold bitcoins they received, or in eth a turning against ICOs, with a mountain of similarities.
The question is whether that will necessarily continue, and the answer isn’t clear because bitcoin is just different and because what is good for bitcoin isn’t necessarily good for other cryptos.
That’s because people primarily enter this space through bitcoin. So other cryptos need something extra. Yet, not necessarily. There’s Litecoin that’s still around, but only because bitcoiners chose it as the substitute when fees increased.
There’s XRP of course that still hangs on, but arguably only because Ripple has a lot of them to sell and thus a very good “marketing” department.
There’s dash as well and monero that’s still around, but only at 1% bitcoin’s value. The rest are off the map with plenty of projects that ranked prior to the last bull run, not quite participating in it.
That’s partly because new projects like eth came around and BCH and tons more, but the point is nothing is a given.
Just because this is eth’s 2015, doesn’t necessarily mean eth will have a 2017. It might, it has plenty going for it, but while before it was competing against bitcoin, now bitcoin is competing against it with the planned addition of smart contracts and so on, while bitcoin is also competing against fiat.
Eth arguably isn’t competing against fiat for now because it doesn’t quite have certainty of issuance. It might later on, but it’s not an algorithmic determination.
So how eth will perform remains to be seen, with bitcoin maintaining its dominance for now. Whether that will change, only time can say.
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