This Narrative Battle May Have 2 Winners

by Juan Villaverde
By Juan Villaverde

Ethereum (ETH, “A”) has — up until recently — suffered from bad publicity, shunned by crypto veterans and newcomers alike.

Veterans thought the approval of spot Bitcoin (BTC, “A”) ETFs left Ethereum without a credible “narrative” to make it a market out-performer. 

Newcomers believe the new kid on the block, Solana (SOL, “B+”), is faster and better than Ethereum in every conceivable way, so their investment money went there. 

These notions are pure hokum, in my opinion. But the effect they can have on prices cannot be denied. 

As a result, Ethereum has been lagging since the crypto bull market kicked into high gear last October as Bitcoin rallied north of 150%.

Solana, a clear market favorite this cycle, did even better, rising 650% since October 2023!  

Another Layer-1 challenger, Avalanche (AVAX, “B+”), rose 350%.

What about Ethereum itself? Well, it barely doubled … which is rather tepid for a bull market.

However, all of this is about to change. 

Let’s start by challenging both the newcomer and veteran concerns.  

Myth 1: Solana Is Objectively the Better Blockchain

Solana is indeed faster than Ethereum. But this speed gain does not stem from any kind of paradigm-shifting breakthrough in new technology.

I won’t bore you with technical details. But to put it simply, Solana achieves its superior speed by demanding that validators — the people who run the blockchain — use better hardware and faster internet connectivity. 

In other words, it’s nothing revolutionary. And neither is its actual processing speed.

Solana founders told us their high-performance blockchain can easily handle tens of thousands of transactions per second. They ran tests in highly controlled environments to prove this. 

But in reality, Solana has ground to a halt before, at nearly 4,000 transactions per second. 

For context, 4,000 transactions per second is actually slower than Ethereum if you also count its ever-growing constellation of Layer-2 networks, like Arbitrum (ARB, “B-”) or Polygon (MATIC, “B”).

But that’s not all.

At about 4,000 transactions a second, even simple wallet-to-wallet transfers become unfeasible on Solana. 

Just the other night I had to interact with this blockchain to place a few simple trades … and I was stuck on my chair for 30 minutes. Submitting and resubmitting the same transaction again and again. Waiting for it to eventually go through.

You see, blockchains like Ethereum handle network congestion in a clever way. Even though your transaction may take a few minutes to confirm, you only have to submit it once. The network will see that it gets processed, even if it takes longer than usual.

Not so with Solana. If the network experiences congestion, after 30 seconds or so, the transactions simply fail. This means you, as the user, must submit your orders all over again. 

There’s no “set-and-forget” feature like you find on Ethereum and other blockchains like it. Instead, Solana makes you constantly monitor your order. 

The simple truth is that, while Solana does have benefits over Ethereum when things are going well, Ethereum is more consistent with its user experience.

And in my opinion, that is still the best user experience in crypto today.

This by no means excuses its manifold flaws and hiccups — which, by the way, are legion.

I am particularly concerned that its Layer-2 networks are all disconnected from one another — resulting in fragmented liquidity, and all manner of other inefficiencies.

But in terms of reliability and user experience, Ethereum is second to none

It is by far the best project in the world of crypto today, including – in my opinion – Bitcoin itself.

Another criticism of Ethereum is that it’s too expensive for everyday use. 

This is true … if, that is, you look at Ethereum as a Layer-1 network only and do not include its Layer-2 networks. 

That’s a big mistake since Layer-2’s are the intended path to scale Ethereum to hundreds of millions of users. 

And while Solana seems cheaper to use, this is just a sleight-of-hand gimmick too many people fall for.

You see, Solana is a heavily subsidized blockchain. End-users don’t have to pay much for transactions, because this expense is offset by minting large numbers of new SOL tokens every day. 

Because of this, those low nominal transaction costs are no bargain. What you don’t pay in direct expense, you still pay — stealthily and indirectly — along with all SOL token holders.

Please don’t get me wrong. While I am critical of Solana as a user, I like it a lot more as an investor.

That’s because it just keeps going up! As I said earlier, it’s up some 650% from the start of this bull cycle.

Indeed, some of the talking heads on crypto social media call Solana the “consumer chain.”  

Why? Because they believe its speed — when conditions are optimal — will attract flocks of new users to web3 and DeFi.

Now, I’ve explained why I take that opinion with a grain of salt. But that doesn’t change the very real fact that Solana is outperforming many competitors. 

As my dear friend and colleague Dr. Bruce Ng likes to say: “In a crypto bull market — like the one we’re in now — narratives matter more than fundamentals.”

And the narrative with Solana is a regular steamroller!  

Regardless of its drawbacks, a critical mass of investors and users have convinced themselves that Solana is destined to be the world’s new number one smart-contract blockchain. 

And that, in and of itself, has caused Solana to rise much faster than Ethereum in this bull market. A trend I expect will continue for the foreseeable future.

And the narrative around Ethereum? Well, that brings me to …

Myth 2: Ethereum Has No Narrative Propelling It Further

To believe this, you have to be living under a rock. Especially this week, as we eagerly anticipated the approval of a spot ETH ETF. 

Early on Monday, analysts had a rather dour 25% likelihood that the first application slated for approval would be approved. 

But by Monday afternoon, the Securities and Exchange Commission tipped its hand by asking applicants to revise their application to remove mentions of staking.

This coordination was seen before the Bitcoin ETF approvals, and it was enough to boost analyst optimism and adjust the probability of approval to 75%.

And that optimism was contagious, sending Ethereum soaring 19% on Monday alone!

The SEC officially approved the listing of an ETH ETF yesterday, though it did not approve of any specific ETF — the very scenario my colleague Marija Matić deemed likely earlier this week.

According to Marija, one of the hottest takeaways from the partial approval is the fact that SEC does not consider ETH a security — a legitimate concern heading into yesterday’s decision. 

But the SEC has now spoken: ETH is a commodity, and this is now a done deal. 

It is now only a matter of time until a spot ETH ETF is tradable.

This should be a strong enough narrative that could reposition Ethereum as a top-performing crypto asset. Especially as the large institutions behind the ETF filings start building their ETH positions.

So don’t get dissuaded by Ethereum’s lacking performance in the near term. ETH’s best days in this bull market are dead ahead.

Best,

Juan Villaverde

About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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