Chart of The Week – Risk On, Risk Off

Sentiment in crypto ebbs and flows like a tide rolling in and out. The last several months has been a mixed bag of “the bottom is in” to “the market has a one-way ticket to new lows”. One proxy to measure risk appetite is the ETHBTC pair, which has gone through multiple peaks and troughs over the last several months. It’s latest mini topping pattern means we’re likely to see more consolidation for ETHBTC in the short run, though the trend is gradually moving up and to the right.

Looking at this chart prompts an interesting question though. At what point will we see ETH’s price decouple from BTC? And what will it take? Can all the bullish narratives surrounding ETH like the Merge and “ultrasound money” and its transition to a deflationary asset be enough to finally break the invisible chain that’s kept them tethered for so long?

We believe that day is coming, especially as the narratives driving them become increasingly disjointed. Productive assets have more appeal to a wider array of investors. That’s why we believe the interest in “post-Merge” ETH is only going to get stronger from here, especially as more people recognize the opportunity to earn higher real yields denominated in a deflationary asset.

The below excerpt from our latest report, “Valuing Layer 1s – Memes, Money, or More?”, speaks to this concept in greater depth.

“Yield talks. It speaks loudest amidst the backdrop of fiat’s negative real (inflation-adjusted) yield. All else equal, investors want positive real yield (e.g., staked ETH) over deeply negative (e.g., US Treasuries). Denomination matters too…

ETH staking – future cashflows are in a deflating currency in ETH (making the real yield even more attractive)
US Treasuries – future cashflows will be inflated away by