Is The Next Big Crypto Trade Hiding Under Our Noses?

Crypto investors go to extreme lengths to find alpha and get a head start on the next big trade. It’s a tale as old as time. Right now traders are diving deep into layer-2 and even layer-3 blockchains, looking for the next memecoin that will hit a 10x. They’re also researching every new artificial intelligence (AI) crypto project that has popped up in the last year.

Don’t get me wrong, memecoins and AI are the hot sectors right now and those are certainly not bad trading strategies. However, both require a lot of work and research to find the right investments. I think there’s a good chance investors might be skipping over a far easier, far safer trade with awesome potential.

If you’ve been following along with the current crypto bull market, you probably know that Bitcoin (BTC) has been the star of the show. Of course, Bitcoin always tends to lead the crypto market, but Bitcoin’s dominance (i.e., the percentage share of the total crypto market capitalization represented by Bitcoin) has remained far higher than usual this time around. Bitcoin’s dominance usually starts to fall during a bull market, which translates to pumps in altcoin prices.

Of course, this is all likely due to the introduction of the spot Bitcoin ETFs from Wall Street giants. The influx of capital has gone straight into Bitcoin and it has seemingly changed the internal crypto market dynamics.

To date, over $180 billion has flowed into numerous spot BTC exchange-traded funds (ETFs), all of which only launched this January. They are the fastest-growing ETFs in history, by a large margin. Just take a look at the chart below from the crypto news website The Block:

A ton of capital has poured into the crypto market, all of which has gone into Bitcoin alone. It’s no mystery why Bitcoin dominance is still so high. The introduction of spot Bitcoin ETFs has had a profound impact on the cryptocurrency market, particularly in terms of Bitcoin dominance.

These ETFs provide institutional and retail investors with a convenient and regulated way to gain exposure to Bitcoin. This effectively bridges the gap between traditional finance and the crypto market. As a result, we’ve seen a surge in demand for Bitcoin, driving up its price and market dominance.

Wall Street’s stamp of approval solidifies Bitcoin’s spot as the #1 cryptocurrency, attracting capital. The new ETFs have led to an increase in Bitcoin’s dominance, but how long will the dominance stay this elevated?

Elsewhere in the market, Ethereum (ETH) has done pretty well to start out this bull cycle. In fact, it’s up over 285% from its bear market low set in June of 2022. However, while BTC has already set a fresh all-time high in this cycle, ETH has yet to come close to its previous high. Ethereum is still trading over 40% below its all-time high and is currently about $3,400.

Ethereum’s underperformance relative to Bitcoin means that the ETH/BTC ratio has been on a steady decline. Looking at the following ETH/BTC chart, you can barely tell we are in a bull market. That’s because historically Ethereum has outperformed Bitcoin in every bull market since it was created. Is that trend about to break or does ETH have a surprise in store for us and the rest of the market?

I personally think the market is grossly undervaluing Ethereum right now. Many investors are off chasing shiny new objects and ignoring the amazing powerhouse of an asset sitting right under their noses.

Ethereum has only gotten better over the last few years. Since the upgrade to ETH2.0, ETH is now a deflationary asset. Over 450,000 ETH have been burned since the upgrade to Ethereum 2.0.

If a decreasing supply isn’t a big enough reason to be bullish, how about a potentially massive increase in demand?

That could come in the form of potential spot Ethereum ETFs, for which the SEC must make a final decision by May 23. Those ETFs could be the catalyst that sets the ETH/BTC ratio back on an upward trajectory. We’ve seen just how bullish the new ETFs have been for Bitcoin; there’s no reason to think they wouldn’t have the same effect on Ethereum.

In the unlikely event that the ETFs don’t win approval, there is still one more reason for ETH/BTC to head upwards. Yes, the SEC (specifically its chief Gary Gensler) has a beef with Ethereum. They’re giving the Ethereum Foundation a hard time right now. Either way, the ETH/BTC ratio is well past due for a reversion to the mean.

ETH/BTC has been trading lower and lower since the peak of the last bull market back in 2021. There appears to be support on the chart near the 0.06 level. I expect ETH/BTC to retest that support in the next few months. If it breaks above that level, Bitcoin’s overall dominance is likely to fall into a larger downtrend.

We’ll have to wait and see how it plays out. However, we won’t have to wait too long to see whether or not the SEC approves those spot ETH ETFs. If they do, expect some fireworks in the crypto market.