What impact will the Bitcoin halving effect and the staking effect of ETH2.0 have on the market?

(Along the Seine, Van Gogh)

In the summer of 2020, DeFi initially demonstrated its manic energy. In the next 6 to 12 months, the power demonstrated by Bitcoin and ETH2.0 may far exceed the magnitude of DeFi. Blue Fox Notes has also published many topics in this regard before: "Crypto Cycle and Value Flow", "BTC Halving Effect: How to Calculate the Price?", "Bitcoin Halving Effect", "ETH 2.0: Move at the Wind", "Why is ETH Silent in the DeFi Carnival?", "10 Signs of ETH's Upward Development", "Seven Reasons Why ETH2.0 Will Create Economic Transformation".

When Bitcoin halved in May this year, everyone was very excited. But Bitcoin halving is not an immediate effect. Bitcoin halving will gradually show up over time. The reason is simple. With the halving of block rewards, the supply of Bitcoin is getting smaller and smaller while the demand for Bitcoin has not decreased (or even increased). There will be no obvious impact at the time of halving, but after a few months to a year, the halving effect will gradually become apparent. The following picture is from MoonCapital, which vividly shows the effect of Bitcoin halving. Only time can make it ferment.

If we look at the price dynamics alone, Bitcoin has shown us the following status in history. What will happen in the future? No one knows, but we can look at the evolution of history. If this is still the case this time, then Bitcoin will enter a self-fulfilling prophecy in the future. Because it will only lead to more and more "strong hands" (hoarders).

(Prediction of the time relationship between Bitcoin's lowest point, halving and highest point, Soure: NunyaBizniz)

Interestingly, there is currently close to $2 billion in BTC on Ethereum, with a locked volume of nearly 150,000, and the trend continues as Ethereum DeFi develops.

(BTC circulating on Ethereum is developing rapidly, Soure: btconethereum)

The power of ETH2.0 If we look at it from the perspective of ETH supply and demand, the influence of ETH2.0 is undoubtedly the greatest in the history of Ethereum. It will exceed the impact of the previous ICO and DeFi periods on ETH. First, the PoS staking mechanism generates a huge demand for ETH. Currently, about 8% of ETH is staked on DeFi, and about 2% on Grayscale. In the future, the ETH staked on ETH2.0 is expected to reach about 30%, which will lead to a significant reduction in the amount of ETH in circulation.

(Ethereum PoS staking yield, Soure:eth2.0-specs)

Another thing we need to consider is that about 60% of ETH has been lying in the wallet for a year without being moved. This means that over a period of time, the actual circulation of ETH will substantially decrease. Secondly, Ethereum's EIP-1559 can capture value. The core of EIP-1559 is to destroy the basic transaction fees. At present, Ethereum's transaction fees have exceeded BTC to become the largest value capture in the encryption field. As of the time of writing Blue Fox Notes, its annualized income fee income can reach 760 million US dollars, which is about twice that of Bitcoin or Uniswap. For the EIP-1559 proposal, please refer to Blue Fox Notes' previous article "Ethereum EIP-1559 and ETH's Value Capture".

(As of the time of writing this article, the annualized return ranking of crypto projects, Soure: tokenterminal)

Even if the base fee captured is lower than the total amount of fees captured by the current bidding model, if the Ethereum transaction scale continues to grow, then ETH can capture more base fees. If the scale reaches a certain level, it may even cause deflation in Ethereum (in reality, it is unlikely in the short term, but this possibility cannot be ruled out). Once ETH enters deflation, this will lead to a cycle that will further promote the reduction of ETH circulation. In addition, the total amount of BTC is currently constant, and Bitcoin is not deflationary. If ETH can enter deflation, it may cause ETH to strengthen its position as a store of value. In the past, people regarded BTC as digital gold, and its position as a store of value was unshakable. But if ETH enters a deflationary state, ETH may also compete with BTC in the value storage position. In terms of value settlement, Ethereum has become the first public chain with an annual transaction volume of more than one trillion US dollars, surpassing BTC. Ethereum has surpassed Bitcoin to become the largest crypto settlement layer. As shown below:

(Ethereum surpasses Bitcoin to become the largest settlement layer, Soure: MESSARI)

The continuation of DeFi The mining bubble of DeFi in the summer of 2020 has been removed a lot, but DeFi will continue, which is different from the crowdfunding craze in 2017. At present, DeFi has actual products in trading, lending, derivatives, insurance, oracles, aggregators, and stablecoins, especially in the fields of trading, lending, and aggregators. Its revenue scale has been at the forefront of the entire crypto field. When the BTC and ETH bubbles are pushed up, DeFi may be relatively squeezed, but eventually people will find that BTC and ETH are too expensive, and then there will be opportunities for DeFis with actual products. Their product development and value capture will support them to move forward. As long as there are truly solid products, protocols, and value capture capabilities, what is coming will definitely come. It may be late, but it will not be absent.

-----Risk warning: All articles in Blue Fox Notes cannot be used as investment advice or recommendations. Investment involves risks. Investment should consider personal risk tolerance. It is recommended to conduct in-depth research on the project and make your own investment decisions carefully.