Cryptocurrencies are entering their final market cycle

Crypto is on the verge of reaching maturity, with Ethereum leading the way.
If you look closely, there are some signs that cryptocurrencies are entering their last market cycle before finally exiting their development phase and entering a long-term era of maturity, stability, and growth.

"The next cycle will be the last" is a bit of a meme in the crypto space. This statement has been made before and I'm not going to make a definitive assertion about it. I'm just connecting some crypto dots that point to a new phase for crypto after this bear market ends.

Let’s dive in!

About Regulation and Agency Approvals

Cryptocurrency is going through its biggest regulatory battle ever. In fact, it’s inevitable. As an industry built on money and finance, we can’t expect to easily enter the mainstream acceptance stage without going through the test of regulatory acceptance. In order for the most important players to play a role in Web3, they need to ensure that the state and its monopoly on violence actually allows them to do so.

“Going mainstream” means that cryptocurrencies pass these regulatory tests.

Fear not. Crypto will win no matter what. All we have to do is wait for the ordeal to be over. It can only last so long.

Crypto is an unstoppable force, and the state is not an immovable object. Gary Gensler will tell us to sign up. Elizabeth Warren will stomp her feet. The banks will try to strangle us.

Ethereum will generate the next block.

History is ultimately defined by the trajectory of technology. Every blow thrown at us by anti-crypto regulators and lawmakers will ultimately be countered by the forces of the free market.

The current crypto phase should not be viewed as a “state attack on crypto” but rather as a “state test of a disruptive technology.” Like freshmen in college or fraternity, we just have to get through it and come out the other side.

Ripple just told Gary Gensler to sit down. Blackrock, Fidelity and other large traditional financial institutions just signaled to the powers that be to calm down. Big brands are largely unconcerned about financial regulation and continue to explore the cryptocurrency space.

Our court cases will be argued, bills will be drafted, voted on, defeated, and then voted on again. It will be frustrating and painful. But it will end. The regulators will eventually sit down. All we have to do is wait. Time is on our side.

Once the regulatory ordeal is over, the mainstream’s cautious curiosity about cryptocurrencies will turn into an eager gold rush as they realize that there is fertile ground out there and that the path to these new frontiers is clear enough that the risks are acceptable.

Protocol maturity

At the same time, we can not only see the light at the end of the regulatory tunnel, but also the ultimate goal of many of the protocols built by this industry.

In my summary of the ETH CC article, there was also a big focus on the fact that many of the protocols needed for Web3 are evolving into their final form. While we are not there yet, the ultimate goal is already visible on the horizon.

Soon, in Web3, we will have more availability of data than we know what to do with.

EIP4844 will commoditize access to the most secure blockspace in the world.

Transactions will be instant thanks to zero-knowledge extensions (zk-rollups). Shared ordering blurs the boundaries between chains. All of these technologies pursue the same result: making blockchain invisible.

By the time the next bull run arrives, the cost of Web3 computing will reach a theoretical low. High gas fees and slow block times will no longer be bottlenecks for decentralized protocol adoption. The responsibility for innovation will shift to application developers, who will be responsible for utilizing the abundant computing resources provided by protocol developers.

The next bull run will not be constrained by scaling limitations. No one will cite “high cost” and “protocol immaturity” as reasons for not integrating with Web3 systems. Ethereum’s “scaling centralization roadmap” will be expressive and customizable enough to easily create proprietary chains to fit the use cases desired by any curious participant.

This will open up access to the long tail of cryptocurrency use cases. When Web3 is slow and expensive, the only accessible use cases are currency, finance, and high-value assets. If something costs tens or hundreds of dollars, only things worth thousands of dollars or more will be supported.

When the cost of participating in Web3 is low enough, it becomes reasonable for platforms to start subsidizing their own users. Once a user’s transactions are subsidized by platforms competing for that user, then the full range of cryptocurrency use cases is finally open to everyone.

What can Web3 do when access to it is almost free?

What new applications can be built?

What new user groups can we tap into?

The answer is everything. All apps. Everyone.

Ethereum's long-term development trend

In 2015, Ethereum set out an ambitious roadmap for itself. As the years went by, the ambition of this roadmap only grew, but the completion rate did not keep up. It turns out that Ethereum's expectations for itself are far more complicated than initially imagined.

Around 2019, a bunch of R&D work and some important engineering breakthroughs opened a new chapter for Ethereum. There was a clearly defined roadmap for "Ethereum 2.0" or "Serentity" (now both are just called "Ethereum"), and the only thing left was testing and writing code.

From 2019 to 2023, code was written and released. Ethereum evolved from a single PoW chain to a modular and expressive PoS chain, with one network after another spawning from its foundation.

Promises were made, promises were kept.

The most amazing thing about this Ethereum development process is the adherence to the original vision set in 2015. While the implementation details have changed and the path itself is unknown, what Ethereum will eventually become has never wavered.

Throughout history, betting on Ethereum’s trajectory and Ethereum developers has never worked out. With the release of EIP-4844 later this year (probably when I estimate), Ethereum will have established a perfect record of delivering on its promises.

Keeping promises and sticking to the vision shows the outside world that what is being built is built with conviction, intent and purpose. We are not crazy - we have been working on the same vision for 8 years. Until now, you have not understood.

Before this, the outside world might have seen Ethereum as a bunch of monkeys running around in chaos. But now, looking back, people will see beauty in the chaos, because Ethereum finally developed into what the world needed - a decentralized Internet computing layer of value. A network of networks.

ETH

Along with the booming Ethereum is the story arc of ETH. Ethereum was a shit coin enough in 2015, and has made corresponding progress with the protocol it runs. From the high inflation and arbitrary 5 ETH/block in 2015, ETH is now a native yield asset with algorithmic monetary policy. It has real returns and no human intervention, which is in stark contrast to the monetary policy of the US dollar and the farce of the Federal Reserve.

Apart from the MEV burning, which further increases the monetary strength of ETH, there has been no further upgrade in ETH’s monetary policy.

If there’s one thing big investors love, it’s yield. ETH’s yield is much higher than other bonds. ETH investors get a yield, while ETH itself is simultaneously deflated. Bondholders get a positive nominal yield, but a negative real yield — “real” being the more important description here!

In contrast, there is a global consensus that the real value of the dollar and U.S. Treasuries must fall in order for the world's financial system to remain stable, and Ethereum's future will have a natural story.

Ethereum’s evolution to the throne of ultra-sound money shows the outside world that there is something uniquely new in crypto. Through cryptography and networks, we can create financial assets that have never been created before. No, the story arc of crypto assets with strong value propositions does not stop with Bitcoin… We will not settle for “digital gold.” We are breaking new ground with Ethereum, an asset that fits well into pre-existing mental models of asset value while being radically different from everything that came before it.

The two parts of Ethereum and ETH maturity can be summed up by the successful navigation of growing lindy and uncharted waters. When society’s attention turns back to cryptocurrencies, they will see a protocol and its assets that have long been making coherent and directional progress toward a vision that has never wavered since its inception.

The legitimacy this earns for the Ethereum ecosystem will propel it as a sufficiently “safe” crypto asset for people to take career risks and start suggesting “researching it” at higher and higher levels.

This kicks off ETFs, a ball that was already rolling.

ETFs Are Here

The race for ETFs is on. As I said in the regulation section above, all we have to do is wait. The arc of history is defined by technology. Gary can only close the door on crypto ETFs for so long - eventually free market forces will take over.

It seems that the sooner the better. Once Bitcoin opens the door to crypto asset ETFs, it will be difficult to prevent other assets from entering their own ETFs.

Making some assumptions here, but we will get a BTC ETF, and an ETH ETF won't be far behind. If these things are combined with the upcoming bull run, the pipeline of capital between crypto and the outside world will be the largest ever. This will be paired with the regulatory conversations mentioned above. At the end of the upcoming cycle, the ticker symbols BTC and ETH will become commonplace next to Apple and Amazon, and available to all the major brokerages in the world.

In any case, the cycle is shortening

Bitcoin's returns have been suppressed for years. If you bought Bitcoin in a frenzy in 2010, congratulations, because the 2011 run-up was the most dramatic Bitcoin run ever. Each subsequent cycle has taken more time to yield lower returns.

Apparently that's the case.

One of the biggest topics in society is that crypto assets are too volatile. Well, every cycle, the volatility of crypto assets is the lowest ever, while the volatility of traditional stock and bond markets is the highest in more than 30 years.

The trading market simply accepted this volatility. The crypto market was born from it. Shaped by it! Now, due to the hands-on nature of the Fed, our market is moving towards stability while the trading market is in turmoil.

As regulatory pressures ease and sustainable, non-speculative adoption of crypto networks becomes more attractive as network infrastructure matures, much of crypto’s volatility can be contained through adoption. The bigger the ship, the harder it is to rock it.

And, my conclusion from the infrastructure section above is that our crypto ship is ready to scale to whatever size society requires.

The Ark is ready, it's time to board!

Crypto Civilization Development

Cryptocurrency will always have its Wild West. There is no way to put the genie back in the bottle - once you give society permissionless finance, the frontier to the West cannot be stopped. Thanks to ERC20, anyone could mint a memecoin, but now thanks to the OP Stack, in the next market cycle, anyone can mint a memechain. You watch out.

But now, with this cycle, we will see the creation of Eastern civilization. The safety and security of civilization. The East and West are in opposition to each other. Those seeking freedom and adventure traveled west to escape the tyranny and oppression of civilization. But some want the safety and security of civilization! Mainstream adoption requires roads, pipes, laws, and police. The fringe of crypto will move west, but the body of crypto will evolve into a predictable, reliable, regulatory-approved environment where the less adventurous can feel safe.

Some cryptocurrencies will start to be considered safe enough, and Web2 norms will feel safe here. Smart contract wallets with account recovery, battle-tested applications, high-traffic L2s, Base… these things will become crypto civilization and will become a place where less adventurous people can still safely participate in crypto society.

But for everyone who reads this, staying here will be a choice. We will know the secret paths to the more obscure corners of cryptocurrency… where tokens and DEXs come into play. For better or worse, we will always have the Wild West of crypto.