Exploring the Reasons Behind ETC's 4-Fold Surge in One Week: We Glimpsed Ethereum's Shadow

Since entering 2021, Bitcoin's market dominance has continued to decline, dropping from 73.2% at the beginning of the year to 42.9% today.

Bitcoin market dominance changes, source bybt

Accompanying Bitcoin's continuous decline in market dominance, we've discovered that in this bull market cycle, many new developments in the crypto market may have jointly contributed to this result. For instance, the explosive growth of DeFi; the widening divergence between Ethereum and Bitcoin price trends; the resurgence of "old mainstream coins" like ETC /LTC/EOS , etc. In this article, we'll select and briefly analyze some key events to discuss future market trends together.

Why Has ETC Risen Strongly?

In the first week of May, ETC became a market-catching "dark horse" with a 400% gain in one week.

Recent ETC/USDT price trend, source <a href= OKX ">

ETC /USDT recent price trend, source OKX

According to OKX market data, ETC's closing price on April 30 was 35.76 USDT, then rapidly climbed to a historical high of 179.9 USDT in the following week, representing a 403% increase.

ETC, long known as the "doomsday chariot," achieving such impressive gains in the short term inevitably raises questions—why could it rise so much?

First, let's understand ETC's economic model itself. As Ethereum's original chain, ETC's economic model was designed with reference to Bitcoin. Its reduction logic is similar to Bitcoin's, but considering network functionality and security design requirements, ETC's reduction is not a halving of rewards but a 20% decrease every 5 million blocks.

ETC supply and inflation rate curve, source ChainNews, author: f2pool

ETC's incentive mechanism is the result of protocol programming, not dependent on human subjectivity. This incentive mechanism is mechanized and algorithmic, with a capped supply curve that tends toward saturation, which will cause the inflation rate to trend downward.

Compared with Bitcoin's block reward mechanism, ETC's reward mechanism has its own advantages. ETC's average block time is 15 seconds, much faster than Bitcoin. In block rewards, ETC has a notable feature: "uncle block" rewards. When handling situations where more than one block is discovered simultaneously and broadcast across the network, Bitcoin's rule is to discard the shorter chain's block and name it an "orphan block," with miners receiving no reward. In ETC, due to the higher block frequency, the possibility of simultaneously generating multiple valid blocks is also higher—ETC's rule is to reward stable blocks simultaneously, which are called "uncle blocks."

In the original ETC network, a single block could receive 5 ETC rewards, a single uncle block could receive 4.30375 ETC rewards and 0.15625 ETC encouragement, with up to 2 uncle blocks packed, so each time at most 13.92 ETC could be obtained.

Current ETC block reward rules, source btc.com

Current ETC block reward rules, source btc .com

Currently ETC has already completed its third reduction on March 17, 2020. According to the previously mentioned reward rule of reducing 20% every 5 million blocks, current ETC miners can receive 3.2 ETC rewards per single block, a single uncle block can receive 0.1 ETC and an equal amount of ETC encouragement, with up to 2 uncle blocks packed, so each time at most 3.6 ETC can be obtained. Compared with rewards before the first reduction, the amount of ETC rewards current ETC miners can obtain has shrunk by approximately 74.4%, so under the dual effects of the deflationary economic model and production reduction, the rise in ETC price makes sense in economic principles.

However, it's obvious that this single factor alone is hardly convincing, so we need to look back at what new changes have occurred with Ethereum.

Clearly, the focus here should be on changes in hash rate. After ETH launched its 2.0 upgrade, its consensus mechanism began gradually switching from PoW to PoS starting in the second half of 2020, and astute miners have already begun making major adjustments to graphics card hash rate.

ETC hash rate and price trend from May 2018 to present, source qkl123

ETH hash rate and price trend from May 2018 to present, source qkl123

Miner OS co-founder Zhang Songqing pointed out the three key elements of miner decision-making: hash rate, coin price, and returns. He noted that ETH and ETC, both using the Ethash algorithm, can be understood through changes in the ratios of these elements to see how hash rate flowed at critical moments in the development of the two networks.

By observing the trend charts of ETC and ETH hash rates and prices, we can discover some characteristics:

ETC's network-wide hash rate is strongly correlated with coin price, with hash rate and price rising and falling in sync. Changes in daily output of ETC and ETH also affect their prices. From historical data, each change in daily output has some impact on coin prices. After ETH's daily output decreased, ETH price first fell then rose, while ETC showed the opposite; and after ETC's daily output decreased, ETC price first fell then rose, while ETH showed the opposite.

Let's compare the flow of hash rate between ETC and ETH since entering 2021. From January 2021 to present, ETH's average hash rate increased from a low of 306 TH/s to 601 TH/s, a 196% increase; while ETC's average hash rate increased from a low of 7.7 TH/s to 32 TH/s, a 416% increase. Particularly starting from April 24, ETC hash rate showed a rapid surge, rising straight from 12.75 TH/s to 32 TH/s, while during the same period ETH hash rate although also showing an upward trend, was inferior to ETC in both strength and magnitude. Thus, as Ethereum's migration to PoS mechanism progresses, recently a significant amount of graphics card hash rate has switched from ETH to ETC. Based on this, we can speculate that ETC's price surge earlier this month, besides the fermentation of the production reduction effect, was more importantly driven by original ETH hash rate entering the ETC network—at least the timing of the two coincides.

ETH's Value Discovery Era

If the above analysis holds, we can say to some extent that this significant rise in ETC price is an accompanying return during the ETH 2.0 upgrade process. This is undoubtedly a very interesting phenomenon, perhaps the market is telling us through such signals: the crypto market is entering an era of accelerated application implementation from the barbaric age.

Just today (May 10), ETH price broke through the $4,000 mark for the first time, and the ETH/BTC exchange rate also reached 0.07, a new high since July 2018.

ETH/BTC exchange rate, source OKX

Undoubtedly, Ethereum is currently the most widely used and hugely potential blockchain infrastructure. According to OK Link statistics, currently there are already over 340,000 tokens issued based on the ERC-20 protocol alone, including over 1,800 valuable tokens, with a total market capitalization exceeding $600 billion.

ERC-20 token market overview, source OKX

Among these, the most noteworthy are undoubtedly DeFi and NFT.

According to OK Link data, the current total value locked (TVL) of Ethereum-based DeFi has reached $112.1 billion, while just one year ago, this figure was only $940 million.

Ethereum-based DeFi TVL, source OKLink

Ethereum-based DeFi TVL, source OK Link

Among Ethereum's DeFi protocols, there are many high-quality projects in the DEX or lending sectors like Uniswap, Maker, and Compound, which have already gained broad recognition from the market and users.

Another hot track rising based on Ethereum—NFT, has also performed impressively since entering 2021. Unlike DeFi, NFT project tokens are issued based on the ERC-721 protocol, dedicated to letting users own unique digital tokens.

100nft

As of this writing, the total NFT market has reached $29 billion, with 24-hour trading volume approaching $250 million.

Additionally, accompanying the progress of Ethereum 2.0 upgrade, Ethereum's economic structure continues to improve. Issues like previously criticized high gas fees and potential concerns about high inflation rates are expected to find solutions in the upcoming London hard fork.

As part of Ethereum's upcoming London hard fork, EIP-1559 will be released in July. Besides improving ETH gas user experience, EIP-1559 will burn a portion of ETH trading fees. This will permanently remove some supply from circulation and reduce Ethereum's daily net issuance. Besides EIP-1559, other improvement work is also underway. The Ethereum 2.0 PoS retrofit introduction will effectively turn Ethereum into a yielding asset. 4.1 million Ethereum have already been locked in the Ethereum 2.0 staking contract. As Coinbase and other companies introduce Ethereum staking, staked Ethereum will increase.

Meanwhile, layer 2 scalability solutions have also been launched. Currently multiple solutions including Rollups, state channels, sidechains, Plasma, Validium, and hybrid solutions are gradually being implemented. All these efforts will greatly help further improve Ethereum's network efficiency and enhance ETH value.

Today as ETH broke the $4,000 barrier, OK Link on-chain data shows that user trading activity on Ethereum continues to remain highly active, with on-chain trading transactions rising continuously for multiple days, setting a new single-day record of 1.78 million transactions on May 9.

On-chain transaction count

With Ethereum's London hard fork approaching, market expectations for Ethereum are further rising. Messari senior research analyst Ryan Watkins believes that once Eth2.0 and PoS are complete, Ethereum may replace Bitcoin as the largest crypto asset.

In the past, if someone asked: Will Ethereum surpass Bitcoin? They might be ridiculed like those asking "Will Bitcoin go to zero?", but today with Ethereum's exchange rate against Bitcoin continuously soaring, Ethereum's ecological empire constantly growing, and ETH 2.0 gradually approaching, this question may no longer be a joke.

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