AMINA Bank: ETH Season: Let’s Try Again

The total crypto market cap has reached all-time highs of $3.3 trillion, but this has been overwhelmingly driven by BTC price appreciation while altcoins languish in its shadow. Only seven altcoins within the top 20 cryptocurrencies reached all-time highs in 2024; three of which did not even exist in 2021.

ETH remains 31% below its 2021 all-time high. However, ETHBTC has managed to recover from its recent lows and remains an interesting play alongside DeFi tokens and alternative Layer 1s for a possible shift in market dynamics. Let’s explore further.

ETH Resurgence

ETH has underperformed BTC as well as its fellow L1 competitors such as SOL throughout the cycle thus far. When ETH does show signs of reversing this regime and puts in a significant bounce, speculation around a long-awaited ETH season warms up. And the market has just given a strong ETH bounce, as ETHBTC reclaimed its previous swing low of 0.035 marked earlier this month.

Figure 1: ETH/BTC

Source: AMINA Bank, TradingView

ETHBTC may succeed to hold this level and continue to trend upwards. ETH sentiment among institutional traders has shifted dramatically, as evidenced by a massive increase in CME open interest for ETH.

At this juncture, we have a straightforward trade - if ETH holds that 0.035 level then we are in for an ETH season, if not, so be it.

Figure 2: Volume and OI of CME Ethereum Futures

Source: AMINA Bank, The Block

The elephant in the room, of course, is the BTC drawdown from ATHs earlier this week. ETHBTC can continue appreciating while ETHUSD is dragged down by a heavy Bitcoin - not the fun kind of ETH season. With the market-leading crypto asset pulling back after a massive rally, it is difficult to call a bottom. However, we're monitoring for signs of momentum exhaustion around the low $90,000 range as an optimal entry for an ETH rotation play.

For an ETH season, an ETH long is the simplest play. Beyond that, how can we play a potential ETH resurgence? The good news here is that a positioning for a DeFi renaissance already gives a solid exposure for such a scenario. The market largely views it as simply as this; ETH = DeFi. We anticipate DeFi tokens such as UNI and AAVE to perform strongly irrespective of how ETH fares against BTC or SOL. That said, DeFi tokens could see an even greater boost if ETH manages to decisively regain its leadership in the market, as it has on many occasions in the past.

UNI

Uniswap has proven itself as the dominant force in decentralized exchange protocols, controlling approximately 60% of the DEX market on Ethereum. Its smart contracts have generated an impressive $848 million for third-party liquidity providers YTD, while recent frontend fee adjustments from 0.15% to 0.25% in April have brought $67 million in revenue for Uniswap Labs ($42 million in the last six months, annualizing to $84 million).

Like Aave, it also has a fee switch narrative, though recent governance proposals to redirect fees to UNI holders have seen resistance, with the latest receiving 42% support in June 2023. Another compelling aspect of Uniswap's potential is its MEV dynamics - with Flashbots routing $577 million to Ethereum stakers YTD, approximately 60% theoretically originating from Uniswap.

The protocol's planned transition to Unichain could potentially internalize this value, making UNI the primary avenue for accessing this revenue.

AAVE

Aave has proven itself as one of the absolute best DeFi protocols ever produced. TVL in ETH terms currently sits at 5.5 million ETH, near its all-time high of 5.8 million ETH back in July 2022. Like UNI, it also has a fee switch narrative that keeps fuelling speculation and driving AAVE price higher. Another welcome feature of using AAVE as exposure for an ETH resurgence is its market coverage. When searching for ETH beta, speculators are met with a myriad of L2s and their associated protocols.

Aave is attractive because it is deployed across multiple ETH L2s, and is a top protocol by TVL on almost every rollup. Aave’s dominance in the DeFi ecosystem is perhaps best demonstrated by its impressive revenue numbers. We generally focus on narratives, but these are undeniable concrete numbers that prove Aave’s success and sustainability - very rare in the altcoin ecosystem.

Figure 3: AAVE Protocol Revenue

Source: AMINA Bank, Token Terminal

If ETH can follow through with this momentum, we could see a wealth effect in the Ethereum ecosystem as ETH wins that familiar reflexive favour with speculators as higher prices beget higher prices. Bitcoin’s success so far this cycle has been driven by real institutional demand. The BTC ETFs have over 1 million BTC in AUM, and the successful launch of ETF options exceeded most expectations. If ETH can capture just a fraction of this interest, an ETH season is possible.

Due to a shift in institutional demand, along with a non-insignificant rally in ETHBTC, we favour giving ETH another chance to prove itself here if BTC’s drawdown momentum is limited to the low $90ks. Fortunately, already being positioned for the DeFi renaissance through tokens such as UNI and AAVE provides attractive beta exposure as it is. The last piece of the puzzle, if one has not done so already, is to get active on Base and be in with a chance to secure a major airdrop.