The taste we’ve gotten of what crypto regulation may be like under Trump in the two weeks since his re-election looks quite promising, especially for ETH.

While ETH has steadied since its spike immediately following the election, institutional demand continues to trend up while supply only further constricts as staking levels reach record highs. This attractive market setup is mixing with expectations of lenient regulation, paving the way for staking in ETH ETFs and fee switches to be turned on for crypto protocols.

With Ethereum ready to capitalize on these trends, there is a robust case for its outperformance, as well as for the outperformance of its strongest L2, Base. 

In this article, we’ll delve into the supply-side mechanics of Ethereum, its institutional interest, post-election price action, and how the Base ecosystem stands to benefit from such a favorable environment.

Decreasing Supply

Between staking levels at all-time highs and the possibility of entering a new burn cycle, Ethereum’s supply situation is pointing toward some particularly favorable market dynamics. 

There is a significant portion of ETH currently locked up, with ~29% of ETH staked and the majority of that being in liquid staking tokens, implying ETH is being used widely across DeFi and restaking protocols. Overall, this speaks to a strong lock-in effect for ETH that’s staked, providing it with superior scarcity amongst blue-chip tokens. 

Additionally, with ETH’s issuance trending down, Ethereum appears to be on the brink of a new burn cycle, which will further increase the deflationary pressures on the token. With gas fees trending up and transaction counts breaking through its 30-day average, demand for blockspace looks to be creating a situation where more ETH is burned than issued.

The last burn cycle, which began in early 2023, illustrated how these dynamics can drive value accrual as ETH becomes scarcer and more valuable. 

With ETH staked at all-time highs and signs pointing to renewed blockspace demand outpacing supply, this deflationary pressure could help propel ETH’s price growth to outperformance.

Increasing Institutional Demand

If anything has become clear in the aftermath of Trump’s re-election, it’s that Ethereum's appeal has intensified among institutional investors.

Since Trump’s victory, ETH ETF flows have surged, turning the total flows positive for the first time since their July launch. When taken with the initial spike in bluechip DeFi tokens with anticipated fee switches after the election, the spike in ETH ETF flows signals the market anticipates the new administration to be friendly towards yield-bearing assets, potentially allowing Ethereum staking via ETFs. 

Previously, there were concerns about Wall Street's understanding of Ethereum’s value proposition. Through this new uptrend, though, it's clear that institutional investors are coming to understand Ethereum as the crypto yield-bearing asset. Further evidence of this understanding is ETF issuer Bitwise acquiring Attestant, an institutional-grade Ethereum staking provider, setting themselves up for this future.

Collectively, these developments indicate a growing institutional understanding of Ethereum’s value proposition as the only regulated, yield-bearing crypto asset, something that may accelerate with the prospects of staking-enabled ETFs.

The Case For Base

While Ethereum stands primed with promising market dynamics, its starchild Base looks primed to be the main environment to capitalize most on its price growth.

First, let us look back to May when ETH had its massive ETF reversal candle. While many alts like LDO and ENS netted impressive gains, the highest outperformance across the board came from the Base ecosystem. On the L2, while leaders like DEGEN netted 30%, lesser-known memes made triple-digit gains. Now, we have multiple “larger” memes putting in triple-digit gains over the week, with MIGGLES up ~330%, KEYCAT up ~150%, and Ski Mask Dog up ~100%, and many smaller ones up even more. 

On top of this, there is a flourishing ecosystem around Virtuals Protocol, which has spawned a series of AI agents and tied Base into one of the leading narratives.

Furthermore, from a fundamentals angle, Base has significantly outperformed all other L2s, surging in total value locked (TVL), daily active addresses, and daily transactions, among others. All this action sets up Base to be the dominant L2 and the premier environment for everything ETH-related in the near future, bolstered further by Coinbase’s war chest and its infra and marketing engines.

That said, Base's exceptional performance, thriving ecosystem, and unmatched growth metrics position it as arguably the leading L2 to capitalize on Ethereum's price growth over the next few years.

Zooming Out

The promising taste of what crypto regulation may look like under Trump mixes seamlessly with Ethereum's tightening supply dynamics and awakening institutional interest to create a compelling case for its outperformance. 

With ETH staking at record highs and an impending burn cycle on the horizon, Ethereum is poised to benefit from increasingly scarce supply. These trends align perfectly with the growing institutional demand, as evidenced by surging ETF flows and Bitwise's acquisition of Attestant, signaling Wall Street's growing recognition of Ethereum as the premier yield-bearing crypto asset.

Uniquely positioned to benefit from this growth will be Base, Ethereum’s strongest L2, which has consistently demonstrated outperformance and ecosystem growth. From its dominance in TVL and daily activity metrics to its rich onchain environment tying well into top trends like memes and AI, Base stands to be the primary arena to capitalize on Ethereum’s growth—all while supported by Coinbase’s muscular support.

Overall, Ethereum seems well positioned to be a leader in the upcoming cycle, underscoring ETH's readiness to capitalize on the opportunities presented by an increasingly friendly regulatory and market environment.

Source : Bankless News, Research and Analysis - Nov 18, 2024