gm friends —

What a week… we got ETH ETFs and some violent price action. I’ll explain.

On the Internet Capital side, we have some exciting developments, including our first sponsor and a special project coming next week!

Today’s topics:

• 📉 Crypto Markets Are Painful & Confusing

• 🚀 Ethereum ETFs Launch

• 🍐 Crypto Trading Pairs

• 🔋 EigenLayer: Ethereum’s Restaking Powerhouse

Check out this week’s YouTube show for a deeper dive!

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Markets

Let me know how you like my first attempt at our revamped markets graphic (above)! I have ideas for other visualizations to add for next week and beyond.

But let’s talk about the actual numbers:

• BTC is UP ~0.7% on the week to ~$67,700

• ETH is DOWN ~7.4% on the week to ~$3,270

• Solana is UP ~6.5% on the week to ~$185

What they don’t tell you about crypto investing is that it’s very painful and confusing. Events that you think should be catalysts are the opposite, the dumbest coins moon, and everything happens in the blink of an eye.

For example, here’s a quick rundown of what happened in the news this week:

• 9 Ethereum ETFs launched Tuesday and experienced greater-than-expected demand

• Presidential Candidate Kamala Harris briefly announced her intention to speak at a Bitcoin conference (where the other candidate Donald Trump is already speaking)

• Elon Musk & other prominent tech personalities changed their X profile pictures to the Bitcoin laser eyes (this is not necessarily crypto-specific but still…)

• Jersey City Pension Fund announced it will invest in crypto

• Bitwise even put an ETH banner on the New York Stock Exchange…

The asset with the most catalysts this week (ETH) performed the worst…this just goes to show that markets are fickle over the short term and may be unresponsive to even the most obvious bullish developments.

This is why I recommend having a strong thesis underlying all of your crypto investments to combat short-term market movements.

When you know why you’re holding a coin and what you believe it will eventually be worth, then it’s harder to shake you out in these volatile market environments.

We’ll explore the idea of having an investment thesis in another post.

Everyone knows I’m a crypto perma-bull so in today’s market takes I’ll balance it out with a healthy mix of both bullish AND bearish takes:

• Bullish Altcoin Sentiment

• The “Trump Pump” Bull Market?

• Solana ETF Speculation

• Crypto Falls With Tech Stocks

• Looming Mt. Gox BTC Sales

Ethereum ETFs Launch

Nine Ethereum ETFs from eight different issuers launched on Tuesday. Analysts had mixed expectations about demand going into the day (see my take here).

Before giving you the results, a quick note on what I mean by “demand”. To understand demand we must understand ETF Volume, Flows, & Net Flows:

• Volume measures the dollar value of ETF shares traded over a specific period of time

• Flows measure the dollar value of the creation or redemption of ETF shares by the issuer over a specific period of time

• Net Flows is equal to the dollar value of shares created minus redeemed over a specific period of time

While high volume indicates strong interest and liquidity, it does not distinguish between buying and selling pressure. Volume shows how actively the ETF is being traded but doesn't directly measure new investments.

On the other hand, flows provide a direct measure of new investments. When net flows are positive, they represent new money coming into the ETF, indicating strong demand as investors buy new shares.

When net flows are negative, they indicate redemptions, which suggest that investors are withdrawing their money, reflecting decreased demand for the ETF.

With this in mind, let’s take a look at the first day ETF stats (below).

A few things you’ll notice:

1. Volume across all ETH ETFs was ~24% of BTC’s

2. ETH ETF Net Flows were ~16.5% of BTC’s

3. Outflows from Grayscale’s ETHE were significantly larger than GBTC’s

So what does this tell us? Let’s start with the understanding that ETH’s market capitalization is ~29% of BTC’s. We will use this as a baseline for comparison

Total Volume was 5% less than would be expected by the market caps. Considering BTC’s oversized mindshare in traditional finance, this isn’t necessarily a surprise. I expect this to remain relatively stable.

Net Flows significantly underperform the market cap estimate at just 16% of BTC’s. Why? Because ETHE outflows were significantly larger than BTC’s on a nominal basis, and more than an order of magnitude larger on a relative basis (by market cap).

If you’re not familiar with ETHE outflows check out this article. But all you need to know is that these massive outflows are temporary, not structural, meaning that they will come to an end.

And they will likely come to an end quickly because of how fast they are occurring.

So adjusting the ETFs’ first day net flows for this fact, we arrive at a different result. Let’s just say ETHE outflows were the same as BTC’s on the first day.

This would have put net flows for ETH ETFs at +$496 million or ~76% of BTC’s… this is massive.

Assuming this is the case after ETHE outflows normalize, it would be a huge bullish catalyst for ETH. So, my conclusion? The ETFs were a huge success.

One last note: we’re comparing the ETH ETF launch to BTC’s, which was the most successful of all time… by standard metrics ETH’s first week on wall street was a monumental success.

An overview of ETFs performance for the remainder of the week can be seen here. We’ll continue monitoring the ETFs’ progress over the coming weeks and keep you updated with developments.

Crypto Trading Pairs

Trading pairs are a common financial concept. A trading pair is two assets that are traded against each other.

Most people are used to ASSET - US Dollar (USD) trading pairs, where the financial asset is traded against US Dollars.

Outside of foreign exchange markets (trading between currencies), this is by far the most common situation in traditional finance.

In crypto, alternative trading pairs are very common because USDs don’t exist natively on blockchains. Stablecoins (tokenized representations of USDs) are the closest we have.

Consequently, understanding trading pairs is extremely important for crypto investors. You must understand both sides of the trade you’re executing.

To drive this concept home, let’s dive into an example of a common crypto trading pair.

A Crypto Trading Pairs Example

Stablecoin pairs (e.g., ETH - Stablecoin) are amongst the most common in crypto because of their connection with USD.

Most investors use stablecoins to trade between crypto and a USD-equivalent or store USD-denominated wealth on a blockchain.

While it’s typically safe to assume that 1 USD-pegged stablecoin is equal to $1 for the largest stablecoins, its certainly not guaranteed.

Even the safest stablecoins like USDC have depegged before, causing them to trade well-below their target value.

In fact, many stablecoins have entirely exploded and become worth nothing. Remember Terra Luna?

While these events are rare, a stablecoin doesn’t need to completely die for you to lose money as an investor.

Here’s a less obvious example of how trading a stablecoin pair could go wrong:

• You borrow ETH from a decentralized lending market like Aave

• You swap ETH for the XYZ stablecoin because you think ETH’s price will decrease and you want to buy it back at a lower price

• XYZ’s price immediately plummets to $0.5 due to speculation that its issuer is bankrupt

• You can only buy back ½ of the ETH that you borrowed (because XYZ is worth 50% less) causing you a massive loss

In this example, the price of ETH against USD didn’t change, but its price against XYZ did.

While you thought you were betting on ETH’s USD price change you were actually betting on its price change in terms of XYZ.

Herein lies the subtle power of trading pairs.

EigenLayer: Ethereum’s Restaking Powerhouse

Other News

• Donald Trump Speaks at Bitcoin Conference and Promises to Make America the “Crypto Capital of The Planet”

• Peter Thiel Invests $11 Million In Pudgy Penguins

• US Politicians Can Receive Donation’s on Coinbase’s Base L2 Network

• Coinbase Asset Management Plans Tokenized Money Market Fund

• Hamilton Lane to Launch Tokenized Fund on Solana

Thanks for reading!

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Nothing in this newsletter is meant to be taken as legal, tax, investing, or other advice. Internet Capital is for educational and entertainment purposes only. All views are our own, and not representative of any organizations with which we are affiliated. For any business partnerships please reach out via the email [email protected]