The fundamentals are still there; we need patience and to slowly wait for the early profit-taking positions to be cleared.

Written by: Lightning HSL

I helped a friend manage their finances and lost a significant amount, with a strategy of mining wbtc-eth-lptoken. Over six months, the mining losses reached the stop-loss line of a 50% drawdown.

After reflecting for two weeks, why is the price of ETH so far behind BTC?

Let’s start with the conclusion:

The early profit-taking positions of Bitcoin (especially the initial miners) have been completely cleared. Satoshi Nakamoto's 1.1 million coins are dead in the address, and it is estimated that there are about 2 million coins permanently lost, similar to Satoshi's 1.1 million dead coins.

Multiple data mining companies have concluded that there are 3 to 4 million Bitcoin coins in a lost state, accounting for about 14%-19% of the total supply of 21 million coins.

ETH does not have such preconditions.

The genesis block of ETH issued 72 million ETH to the foundation and ICO investors. Out of these 72 million coins, 1.6 million ETH (2.3% of the current total) have not been cleared.

Compared to the current price, these genesis coins can almost be considered as having a cost of 0.

Starting from PoW mining in 2015, each block yielded 5 ETH, and during the ICO boom in 2016, it is estimated that 10 million ETH were mined, with very low costs.

During the ICO wave in 2016, there were also a large number of projects that can almost be deemed as having 0 cost profit-taking positions.

In the DeFi summer that began in 2020, a large number of potential selling pressures also emerged.

I do not have the capability to research specific quantitative data; even ChatGPT Pro, with a $200 monthly salary, couldn't help me clarify this.

But just a rough guess: the early 14%-19% of BTC coins that are locked vs. ETH, this data is about 2% to 5% (with a total of 120 million, early profit-taking positions are between 2.4 million to 6 million that have not changed hands).

The potential selling pressure of several million ETH is a significant number; a large transfer from early miners on-chain would scare everyone, and various on-chain monitoring accounts would frantically retweet.

BTC has undergone large-scale and thorough turnover over the past 10 years. Before 2017, the main miners were Chinese, and before 2021, Chinese exchanges accounted for the vast majority of trading volume. These two facts point to the Chinese holding a large amount of coins, but after several government bans, the coins have been taken away by Americans.

Compared to BTC, the washout of ETH is clearly not thorough enough. The selling pressure from early ETH profit-takers is too great, which may be the fundamental reason why the eth/btc exchange rate has been declining over the past year.

Why did the ETH/BTC exchange rate rise significantly in 2016 and 2020? Of course, it was because ETH had major innovations at that time, while BTC did not.

However, in the past year, with the ETF bull market, the policy advantages of ETH and BTC have been almost equal, with BTC slightly stronger. The selling pressure from early profit-takers has become the key to the price confrontation between the two coins.

Comparing doge, ltc, bch, and EOS can provide supporting evidence.

Both doge and ltc have had their founders sell out, leading to a very high degree of decentralization in holding. Therefore, even though these two lack technology, ecosystem, and applications, their prices have not dropped too badly and can remain in the CMC top 20.

BCH is similar; it replicated BTC's ledger, meaning that the early 3-4 million BCH are dead coins, which also significantly reduced selling pressure, allowing the price to remain in the top 20 in the past.

PoW mining, due to the costs of mining machines and electricity, tends to sell mined assets promptly. In contrast, PoS mining, with almost 0 cost, tends to accumulate mined assets and sell them later, leading to greater potential risks. Therefore, PoW mined coins tend to perform better in a counter-cyclical manner than PoS mined coins, as PoW miners often clear their profit-taking positions in a timely manner, avoiding accumulated risks, while PoS mining is more inclined to accumulate significant risks.

For example, with EOS, even if the community locks up Block One's 100 million genesis coins, there is no doubt that the early profit-taking positions from DPoS node mining still exist, leading to significant selling pressure. The coin price has directly dropped to CMC top 50.

Similarly, over the past decade, coins that can stabilize in the top 20 either have reliable fundamentals such as real applications, users, and funds, or their early profit-taking positions have been cleared. The third scenario is strong speculative coins (like XRP).

If the above conclusions are correct, what implications or opportunities might there be?

First, I believe there is no need to FUD ETH; the fundamentals are still there. We just need to patiently wait for the early profit-taking positions to be cleared. Although the price may continue to retract, patient investors can still profit.

There is also no need to worry too much about SOL flipping ETH; we can think about this issue after the early profit-taking positions of SOL are cleared. I believe any ETH killer can only talk about killing ETH after they have first killed off their own early profit-takers.

When investing in coins, examining the decentralization of holdings is very important.

Patience is needed; we must wait slowly.

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