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| By Bruce Ng |
As expected, this week, the conversation has been dominated by speculation about the spot Bitcoin (BTC, “A-”) ETF. Naturally, the No. 1 crypto is rallying from the anticipation.
However, an ETF approval is only the beginning.
As my colleague Juan Villaverde pointed out last week, there’s one big question investors will have to ask themselves once a spot Bitcoin ETF is approved: What’s next?
Well, here at Weiss, we like to ask those questions ahead of time so you can better prepare.
So, what will happen next?
In short, funds will rotate as they always do.
How liquidity works in crypto is a bit like a trickle-down system. Bitcoin generally gets the lion’s share of new liquidity first. Then, as Bitcoin gets overbought, liquidity flows to other blue-chip cryptos, then mid-sized altcoins before finally getting to the small-cap projects.
But with so many altcoins, it’s hard to pick the winners from those that’ll get left in the dust.
That’s why investors need to be aware of the narratives propelling crypto sentiment. Especially in a bull market like this. Those trends will lead you at least to the right sector. From there, specific opportunities are easier to find.
So today, I want to cover the top 3 trends that I think will lead the crypto market this year.
Trend No. 1: Crypto AI
AI tools like ChatGPT and Midjourney have brought AI technology to the forefront of the daily lives of the retail consumer. Now, it’s coming to the blockchain.
My colleague Jurica Dujmovic has already done an excellent job breaking down the exciting promises of AI tech and how it’s likely to propel blockchain technology — and thus what crypto can offer — even further.
He also gave you a few examples of what current crypto AI platforms are doing.
Good.
That’s because investment into AI from both the traditional finance and crypto sides will see a major uptick this year. But where investing into traditional AI stocks will yield nominal returns, I believe investing in crypto AI will yield even better results. That’s because crypto turbocharges AI technology, enabling AI to be more decentralized and freer.
To be completely fair, while they offer the potential for greater returns, the crypto AI investment opportunities are riskier than buying stock in a tech giant that has an AI branch like Microsoft (MSFT), Alphabet (GOOGL) or Nvidia (NVDA).
So only you can determine if the additional reward is worth the additional risk exposure.
Trend No. 2: ETH Liquid Restaking
Before last year, staking your Ethereum (ETH, “B+”) for yield was a complicated process and required you locking your coins. That meant you couldn’t withdraw your ETH until a set time.
The release of liquid staking last year changed all that. Now, you can stake without worrying about a minimum staking amount or locking up your crypto. Liquid staking platforms allow you to stake ETH for a yield, while also providing a liquid staking token, or LST.
Basically, this token is an IOU that has a value equal to 1 ETH.
Naturally, the beginnings of an ecosystem developed that supports and utilizes LSTs, as they can be treated like any other crypto asset. You can trade and lend them.
You can even restake them.
Yes, you heard us right, you can restake the IOU for your already staked ETH to go for even more yield without spending another cent.
Platforms like Aave (AAVE, “B”), Curve (CRV, “B-”) and Uniswap (UNI, “B”) all have pools for staking an LST.
Restaking is just a crypto form of rehypothecation — the reuse of collateral from one loan to finance a new loan. And yes, it does increase the risk of staking. After all, if the value of your ETH plummets, you’ll be liquidated out of two pools.
But if you can stomach the risk, restaking lets you get more bang for your buck in terms of yields.
Trend No 3: Parallel vs. Modular Blockchains
When Ethereum kicked off in 2014, there was only one way to make a blockchain. But now, advancements and evolution have given developers a multitude of options.
But when it comes to scalability and affordability, there are two main schools of thought:
- Parallel Blockchains: Developers supercharge a single blockchain by building multiple sub blockchains by its side.
Layer-2 solutions, such as Polygon (MATIC, “B”) and Fantom (FTM, “C”) fall into this category.
- Modular Blockchains: Developers break up all the tasks of a single blockchain into four main parts and let specific blockchains tackle just one or two of those tasks.
Examples of modular blockchains include Near Protocol (NEAR, “C-”) and Celestia (TIA, Not Yet Rated).
Every bull market is a sucker for new tech and new stories … and new funding. That’s why I believe both types of blockchains will do well, though I do expect the narrative to shift back and forth between which one will sit in the spotlight.
But if you’re looking for even more insight into which altcoins are likely to be waiting at the bottom of that liquidity trickle with a bucket, I suggest you watch Juan’s recently released Crypto Convergence briefing.
In it, he names three altcoins that he believes folks should own before the bull market gets truly well underway. And with the ETF approval potentially around the corner, time may be running out to get in.
That’s why I urge you to watch it now.
Best,
Dr. Bruce Ng
