Dialogue with CryptoQuant CEO: What is the significance of 1559? Will Ethereum surpass Bitcoin? Is it a bull or a bear now?

Wu Shuo Author | Liu Quankai

Editor of this issue | Colin Wu

0: Please allow Ki Young Ju (hereinafter referred to as Ki) to introduce CryptoQuant and say a few words to the Chinese community.

Ki: CryptoQuant provides retail investors with better investment visibility by providing data services. Most crypto investors feel anxious when investing in cryptocurrencies, so they are struggling to overcome the barriers of data-driven investing. Without data, crypto investing would be a gamble. This is where CryptoQuant comes in. We started as a data provider, and now our mission is to serve all investors in the cryptocurrency market by providing visualized data and community-driven insights for everyone.

1: GBTC has been trading at a negative premium for a long time. What do you think of this situation? How long will the negative premium last?

Ki: I think the main reason for this negative premium is that people think that the Bitcoin ETF will be approved soon. If the ETF is approved, people will no longer need the Bitcoin trust product.

This situation may mean that most institutions believe that Bitcoin ETFs will be approved within a year. In addition, the way institutions buy Bitcoin is changing from indirect purchases to direct purchases by Tesla, MicroStrategy, etc.

They don’t buy Bitcoin using Grayscale products, but rather use Coinbase Prime, OTC desks, and Custody products for direct purchases. So you probably don’t want to interpret this data as “lower interest from institutional demand.” It could be, but not necessarily.

2: The current Bitcoin price deviates greatly from the price predicted by the S2F model. Is the S2F model still trustworthy? What do you think of the predicted price provided by the S2F model?

Reference S2F model: The prediction that Bitcoin will reach $100,000 in May 2022 was "slapped in the face". Will the magic continue?

Ki: I think the S2F model is flawed on the demand side. The model is based on scarcity, and scarcity is about the supply side. That’s why the current BTC price is so different from the price predicted by the S2F model.

For example, the total BTC reserves of all exchanges have supply and demand side factors. If people want to sell BTC, they send it to the exchange. If not, they (mainly whales) will withdraw from the exchange to a custodial wallet.

If Plan B adds some variables to look at demand-side factors, I think the model can be more accurate.

3: EIP-1559 will be launched today. What can it bring to Ethereum and even the entire cryptocurrency market?

Ki: I believe EIP-1559 will be a game changer. Lowering fees can solve the blockchain trilemma and improve scalability, security, and decentralization. Currently, all DeFi services, NFT markets, and blockchain games are running at unreasonably high fees.

If we can use these services at very low fees, the number of transactions will increase, and network activity will generally increase the value of the blockchain, causing the price to rise in the long term. However, this cannot be used to determine short-term price trends.

4: There is a voice in the market that the rise of Ethereum and other blue-chip DeFi will break away from the shackles of Bitcoin and lead the market to a new peak. Do you think this is possible? If so, is it possible to happen in the rest of the year?

Ki: I think Ethereum may surpass Bitcoin's market cap in the long run, but not this year. This bull run is driven by the narrative of "institutions entering the crypto market". This trend may continue into next year. Without institutional demand, Ethereum cannot overturn Bitcoin's market cap.

I met executives from Goldman Sachs, Fidelity, and other large institutional asset managers in Miami a few weeks ago, and they said they are still struggling to explain what Ethereum/DeFi is to their bosses. I think it will take a few years for Ethereum/DeFi projects to build confidence for institutional adoption.

5: The Metaverse is very popular recently. Can you tell us what you think about it?

Ki: Nowadays, every term like NFT, AR/VR, games, etc. is called Metaverse. I think Metaverse is just NFT and play-to-earn games. Both definitely have great upside potential in a few years. But building a Metaverse may take at least a few years.

6: It’s a commonplace, and the question that everyone is most concerned about is, do you think we have entered a bear market? Is there a chance to set a new high in the second half of the year? How to judge the price trend in the second half of the year?

Ki: Good question. I think the market is still in a bearish trend, and exchange flow indicators such as the exchange-whale ratio show that whales are still depositing a lot of BTC to exchanges.

If the whale ratio is between 85%-90%, the market is likely to be bearish or sideways.

But the problem is that there are people buying Bitcoin outside of exchanges, and there is a chance that big names will announce their purchases soon. I think that, for now, the market is good for scalping. If you are a long-term holder (more than a year), you can pile some Bitcoin here, but as a trader, I would not hold a position for a longer period of time in the current market.

Selected Questions from Audience

1: What do you think about the future growth potential of the NFT market?

Ki: I think there are three factors driving the NFT market: 1. Metaverse (+ games); 2. Purchase of artworks/souvenirs; 3. Money laundering through purchase of NFTs.

First, there is a lot of upside potential, but it will take a few years to build out the entire metaverse and launch more successful games;

The second point is that it’s working well now, and if we can penetrate the traditional art market like Sotheby’s (auction house), that would be huge;

Third, I believe some of the big purchases of NFTs are for money laundering. This will be the starting point for a larger digital art market.

Overall, I believe the NFT market will become huge in a few years.

2: Gamefi has become popular, but there is no killer game in this field yet. Do you think the subsequent killer games will be developed by professional game companies? Or blockchain companies?

Ki: I think traditional top game companies will not launch decentralized blockchain games because there is no advantage in changing their database to blockchain. If they decentralize their games, their revenue may decrease. I think second-tier and startup game companies can launch decentralized games, but I don’t see any professional teams doing so at the moment.

3. The issuance of stablecoins has slowed down recently. What do you think this means? Are there any other data that can corroborate this trend?

Ki: Many stablecoins are being redeemed these days. BTC needs more stablecoins or fiat onramps to break new ATHs, but the trend seems to be redemption of stablecoins and issuance of fewer stablecoins.

I see two bullish scenarios:

First, big brands announced the purchase of BTC (e.g. Apple)

Second, retail investors are buying BTC with their local fiat currency (mostly Americans I think) You can see this trend with the premium on Coinbase (the price gap between the Binance BTC/USDT pair and the Coinbase BTC/USD pair)

4. What do you think are the three most effective indicators for measuring bull and bear markets?

Ki: There is no one indicator that can predict the future with certainty, but I mainly use whale dumping indicators such as all exchange whale ratio (72h MA), all exchange inflow mean (24h MA), exchange net flow, and stablecoin ratio to determine whether it is a bull or bear market.