ETH/BTC Rate Returns to 0.07 - Has Ethereum's Counterattack Begun?

According to OKX market data, after more than half a month of consolidation, ETH surged again on August 31 with significant volume, reaching a maximum single-day gain of 8.86%, and continued to rise over the following two days. On September 2, it touched $3,843, the first time since May 19 that it has climbed above $3,800. In terms of trading volume, on the OKX platform alone, 164,000 ETH were traded on August 31, the second-highest level since August 5. Looking at the ETH /BTC trading pair, ETH's performance has been equally impressive.

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ETH/BTC Exchange Rate Trend, Source: OKX

As seen from the ETH/BTC exchange rate trend above, as of 16:00 on September 2, 2021, the ratio reached a high of 0.07476, the highest level since June 9, and only 10% away from the yearly high of 0.082 set on May 15.

Accompanying the price fluctuations of ETH and BTC in the secondary market, their market capitalizations and their share of the total cryptocurrency market have also undergone corresponding changes. In terms of market cap, Bitcoin's current market capitalization is $941.9 billion, while Ethereum's is $439.5 billion. On January 1, 2021, Bitcoin's market cap was $539.438 billion, and Ethereum's was $84.038 billion. In comparison, Ethereum's market cap relative to Bitcoin has increased from 15.58% to 46.66%.

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Changes in Bitcoin and Ethereum Market Cap as Percentage of Total Crypto Market, Source: qkl123

Looking at their share of the total cryptocurrency market, Bitcoin's market cap accounts for approximately 42.48%, at the lower end of the range during this bull market, while Ethereum's market cap share has climbed to 18.95%, already comparable to May levels and at the peak range of this bull market.

Amidst these shifting dynamics, the classic question inevitably resurfaces—will Ethereum surpass Bitcoin? However, in this article, we will not delve deeper into this topic for now. Instead, we will follow recent developments in the Ethereum network and ecosystem to further observe the reasons behind Ethereum's strength and its future development potential.

Early Signs of "Deflation"

This naturally revolves around the EIP-1559 proposal. Judging by current developments, Ethereum co-founder Vitalik Buterin's original goal of using EIP-1559 to reduce on-chain transaction fees has clearly not been achieved. EIP-1559's greatest contribution to the cryptocurrency market has been giving investors the expectation of ETH deflation, and in fact, this is happening. Since EIP-1559 was officially deployed, we have been closely monitoring the difference between the base fees burned on-chain and the daily new ETH issuance. Recently, we observed that this difference is poised to turn from negative to positive, achieving true "Ethereum deflation" in the complete sense.

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ETH Daily Burn Statistics, Source: OK Link

Data from qkl123 shows that on August 31, the ETH network generated a total of 6,443 blocks. Calculating at 2 ETH per block reward, the new ETH issuance that day was 12,886 ETH. Due to the recent NFT boom driving up base fees, ETH burn volume has also continued to rise. OK Link data shows that on August 31, EIP-1559 burn volume exceeded 12,000 for the first time, reaching 12,104 ETH, narrowing the difference between burn volume and new issuance to -782 ETH. On September 1, the ETH network generated 5,368 blocks, with new ETH issuance of 10,736 ETH, while the burn volume that day was 10,371.64 ETH, further narrowing the difference to -365 ETH. Roughly speaking, this means that the amount of ETH burned in the past two days basically offset the day's new ETH issuance.

An optimistic projection is that as long as NFT popularity can continue for some time, ETH will likely achieve true "deflation" in the short term. Increased burn volume directly reduces circulating supply. From the most basic economic perspective of supply and demand, this has a significant impact on ETH price levels.

Strong Investor Holding Sentiment

For most investors in the market, transferring assets to trading platforms is the most common selling method. Therefore, the proportion of ETH in trading platform addresses relative to total circulating supply provides a rough understanding of changes in investor selling willingness. Statistics from glassnode show that since mid-April 2020, the proportion of ETH in trading platform addresses to total circulating supply has shown a declining trend, dropping from around 20% to near 13%. This situation can to some extent be interpreted as investors transferring their held ETH to independent wallets , DeFi smart contracts, or ETH 2.0 staking. Of course, Ethereum miner addresses are also an important target worth attention. However, regardless of where these ETH ultimately flow, this reflects to some extent increased holding sentiment and objectively reduces selling pressure in the secondary market.

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Proportion of ETH in Trading Platform Addresses to Total Circulating Supply, Source: glassnode

Specifically, according to glassnode statistics, as of September 1, the amount of ETH locked in DeFi smart contracts has reached 26.68% of total circulating supply, while in January 2020, this figure was as low as 10.5%, forming a sharp contrast with the change in ETH proportion on trading platforms.

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Proportion of ETH Locked in DeFi Smart Contracts to Total Circulating Supply, Source: glassnode

In terms of Total Value Locked (TVL) in DeFi smart contracts, there has also been significant growth recently, currently reaching $167.88 billion, surpassing the May high and continuing to hit record highs.

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Total Value Locked (TVL) in DeFi Smart Contracts, Source: glassnode

A similar trend exists in ETH 2.0 staking totals. According to OK Link statistics, the total amount of ETH staked in ETH 2.0 has reached 7.289 million, accounting for 6.23% of ETH's circulating supply, and this amount continues to rise.

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Total ETH Staked in ETH 2.0, Source: OK Link

Looking at changes in Ethereum miner address balances, from July 2020 to June 2021, over the course of a year, miner address balances showed a clear downward trend, dropping from a high of 7.36 million to 5.88 million. Interpreting this from the perspective of quantity changes, this means miners not only sold all daily mining rewards but also sold approximately 1.48 million ETH from inventory. However, since June 2021, this downward trend has reversed, with Ethereum miner address balances rising from 5.88 million in early June to 6.04 million.

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Ethereum Miner Address Balance Changes, Source: OK Link

Finally, let's look at changes in the number of on-chain holding addresses, which is the largest category. If we look at changes in the number of on-chain addresses holding at least 1 ETH, we can also discover some valuable phenomena. Categorized by the amount of ETH held, addresses holding at least 1 ETH, at least 10 ETH, and at least 100 ETH have all shown relatively clear upward trends recently, but with different details.

Specifically, the number of addresses holding at least 1 ETH is currently approximately 1.32 million, and has maintained a solid upward trend since January 2020, although there were multiple fluctuations during the period affected by short-term market downturns. The number of addresses holding at least 10 ETH is currently approximately 277,000. From November 2020 to June 2021, it decreased for eight consecutive months, from 293,000 to 261,000, and only began a slow recovery this January. However, compared to the change curve for addresses holding at least 1 ETH, this curve is less affected by market conditions and smoother.

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Changes in Number of Addresses Holding at Least 1 ETH and 10 ETH, Source: glassnode

As for changes in the number of addresses holding at least 100 ETH and at least 1,000 ETH, they are more aligned in time. The former currently has approximately 43,000 addresses, while the latter has 6,386. During the eight months from November 2020 to June 2021, both showed continuous downward trends, with the former decreasing from 53,000 to 42,000, and the latter decreasing from a high of nearly 7,400 to 6,330, before stabilizing in late June this year and beginning a slow recovery.

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Changes in Number of Addresses Holding at Least 100 ETH and 1,000 ETH, Source: glassnode

Next, let's look at changes in the number of addresses holding more than 10,000 ETH. Unlike the changes in the number of addresses in the four holding ranges above, these whale addresses have shown an overall upward trend in quantity since November 2020, increasing from 1,040 to a maximum of 1,208, and currently maintaining at 1,176.

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Changes in Number of Addresses Holding at Least 10,000 ETH, Source: glassnode

Combining the above data, we can make a simple summary. During the ETH bull market from the second half of 2020 to the first half of 2021, Ethereum miners and large-capacity investors holding 10 to 1,000 ETH mostly conducted profit-taking sales, while small-capacity investors holding 1 to 10 ETH and whales holding more than 10,000 ETH continued to buy on dips. After experiencing the downturn and volatile market from April to July, all types of investors seem to have slowed their ETH selling behavior and instead chose to hold, which may be a positive signal for future market conditions.

Another signal worth noting is that in the ranking of ETH burn volume since EIP-1559 went live, ETH transfers has rapidly risen in burned volume, now surpassing Uniswap V2 to rank second, only behind OpenSea. This also reflects from the side that trading activity on the Ethereum chain has increased.

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ETH Gas Fee Burning Ranking, Source: qkl123

Finally, let's look at the potential impact of the hot NFT sector on the Ethereum ecosystem and ETH price. According to media statistics, among the top 20 NFT projects with highest sales volume currently, 17 are issued on Ethereum, accounting for 85%. Among the top 100 projects, 84 are issued on Ethereum, accounting for 84%. Moreover, most of these Ethereum-based projects currently use ETH for payment. As the NFT sector continues to heat up, this will theoretically further drive increased demand for ETH.

Due to the new changes brought to the Ethereum ecosystem by the rise of NFTs in recent months and ETH's strong performance in the secondary market, de Vere CEO Nigel Green declared in mid-August: "Ethereum's rise to the top of the cryptocurrency space seems unstoppable." However, Banz Capital CEO John Iadeluca expressed a different view, stating: "Ethereum and Bitcoin are both cryptocurrencies, but in terms of vision, they pursue two very different goals. I don't think Bitcoin and Ethereum are competitors; on the contrary, I believe their developments complement each other."

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