Blofin Flow Insights: Parting Ways
The gradual separation of correlation between BTC and ETH indicates that the overall change in the narrative of the crypto market is nearly complete. As a widely recognized "liquidity container," BTC has become one of the essential macro underlying assets, gradually approaching the status of FX and precious metals. In contrast, the narrative of ETH is turning to mega stocks. Unless there is a grander narrative and widespread application, the attractiveness of ETH for liquidity may continue to b
Authors:
Matt Hu, Blofin CEO
Griffin Ardern, Blofin Macro Trader
"Time, Forward!"
In just 15 years, the crypto market, which has one of the fastest-changing microstructures in the world, has become very different. In 2010, BTC was little more than an "experimental toy" for a group of geeks to exchange for pizza or handle small private transfers. In 2023, from BlackRock to Goldman Sachs, BTC and related derivatives have entered their product lists, and according to a survey by PwC and AIMA, Cryptocurrencies have also become an essential part of nearly one-third of hedge funds' portfolios.
At the same time as the microstructure changes, the macro narrative is also quietly changing. "Decentralized distributed ledger" was the design goal at the beginning of the birth of crypto. In traditional markets, cross-border transfers are a time-consuming and laborious thing: to ensure "safety and credibility," banks need to confirm the identity of users and the source of funds and then complete the whole process through the complex SWIFT system, the time is measured in days, and the cost cannot be ignored.
Cryptos represented by BTC solve this problem. With the blessing of blockchain technology, people link liquidity to the BTC network and complete transfers in the form of Bitcoin through the network. The transfer process has been shortened to seconds.
As a result, liquidity began to enter the crypto market one after another. This brings a new feature to the crypto market: volatility. On the coin standard, 1 BTC is always equal to 1 BTC; when converted to the fiat standard (such as the USD standard), the rapid liquidity changes bring considerable price fluctuations.
In the early history of BTC, it was not surprising that the 10% level fluctuated up and down, and even the price halved occasionally. High volatility makes risk hedging a "hard demand" in the crypto market and brings many speculation opportunities. Coin-margined derivatives began to appear, constituting the current crypto derivatives market prototype.
Cryptocurrency operates based on blockchain, and the characteristics of blockchain that cannot be forged and tampered with make people begin to explore more uses of blockchain. Commercial contracts can be notarized through blockchain. Blockchain-based programs can complete funds transfers and other complex operations without trust. Game drops and artworks can also be authenticated and traded through the blockchain network. The addition of smart contracts turns all the above possibilities into reality and thus opens the second narrative of the crypto market: projects and applications.
As one of the first public chains to introduce smart contracts, Ethereum's first-mover advantage at the application level has made it the core of the Crypto 2.0 narrative. Whether it is DeFi, NFT, or GameFi, most applications are built on Ethereum; the distinction between "application" and "liquidity container" begins here.
However, during the bull market, the widespread influx of liquidity made this distinction less obvious - investors' preferences for BTC and ETH did not differ according to different narratives. At the same time, because ETH can also be used for payment, transfer, and other purposes, the differences between BTC and ETH are further concealed.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.