This episode dissects the surprising ETH BTC rally, questioning whether it's a sustainable recovery or a short-lived squeeze, and what this means for the broader crypto landscape relevant to AI infrastructure and investment.
Obby's Initial Market Reaction & ETH BTC Surge
- ETH BTC (Ethereum/Bitcoin trading pair): This ratio indicates the relative value of Ethereum compared to Bitcoin. A rising ETH BTC means Ethereum is outperforming Bitcoin.
- He notes that ETH BTC was a "huge winner," rallying approximately 32%, surpassing his earlier target of a 20-25% increase before considering short positions. Obby attributes this rapid rise to the unwinding of "perpetual shorts" – short positions in perpetual futures contracts that don't expire.
- His current strategy involves waiting for a period of sideways price action and demonstrated weakness before "attacking weakness", suggesting a cautious approach after such a rapid ascent.
- Obby believes the strength in ETH BTC was largely due to an overwhelming number of traders being "giga short the asset."
Jonah's Skepticism Amidst the Rally
- Jonah states, "I still think that ETH is a flaming pile of crap. Um I do think that it is a good short."
- He agrees with Obby's cautious stance on shorting ETH BTC immediately, citing past negative experiences with trying to time market reversals.
- Despite the recent rally, Jonah points out that ETH BTC, trading around 0.024, is still near its historical lows when viewed on a long-term chart (compared to previous highs like 0.085-0.09).
- He questions the narrative that institutional involvement from TradFi (Traditional Finance) entities like BlackRock will genuinely accrue value to ETH holders, suspecting most activity might occur on Base, an Ethereum L2 (Layer 2 scaling solution) designed to make transactions faster and cheaper.
- Jonah considers ETH "radioactive" and anticipates other L1s (Layer 1 blockchains), the foundational networks like Bitcoin or Ethereum, will continue to gain traction.
Obby on Short Squeezes and ETH's True Fundamentals
- He highlights that many traders were short ETH against other assets (e.g., long Hyperliquid, a decentralized perpetuals exchange, and short ETH; or long Pendle, a yield tokenization protocol, and short ETH). The covering of these shorts cascaded, fueling the rally.
- Obby notes that in crypto, "price is fundamentals in many ways," as momentum attracts buyers, even if the underlying value proposition hasn't improved.
- He anticipates a "pretty radical reversal" in ETH BTC once the short covering subsides and momentum wanes, suggesting traders watch for two to three days of negative price action (red candles) as a signal.
- Crucially, Obby asserts, "the reality is the fundamentals have not changed. um like usage usage is going everywhere else but ETH right now."
- He also points to the lack of MSTR (MicroStrategy)-style corporate treasuries adopting ETH, unlike what's been seen with Solana or Tao (Bittensor), a decentralized AI network. This absence, for Obby, signals a lack of strong institutional conviction in ETH itself.
- Strategic Implication for AI Researchers/Investors: The mention of Tao highlights growing interest in specialized L1s for AI. The fundamental health and adoption of underlying L1s/L2s are critical for the viability of decentralized AI projects; ETH's perceived stagnation could push AI development to more innovative or efficient platforms.
Jonah on ETH's User Experience and Architectural Flaws
- He recounts a personal experience of high transaction fees on Ethereum for a simple Tether transfer, underscoring the platform's costliness for everyday users.
- Jonah argues that the crypto space has evolved, but ETH's core technology has not kept pace, particularly concerning transaction costs and the complexities of bridging (transferring assets between different blockchains, e.g., from Ethereum mainnet to L2s like Arbitrum or Base).
- He criticizes the reliance on centralized exchanges like Coinbase, Kraken, or Bybit as the "best bridge" to L2s, stating, "honestly, that defeats the purpose, right? If you're trading on chain, uh, or you're doing something on chain, it's supposed to be onchain."
- Jonah expresses a loss of faith in Ethereum's architecture and doubts that increased user activity on L2s like Base will translate into a significantly higher ETH price, especially given its current FTV (Fully Diluted Valuation).
- Actionable Insight for AI Investors: The efficiency and cost-effectiveness of blockchain infrastructure are paramount for deploying AI models and applications on-chain. ETH's high fees and bridging complexities, as highlighted by Jonah, could make it a less attractive platform for AI development compared to more scalable and user-friendly alternatives.
Conclusion
The discussion reveals deep skepticism about ETH's recent rally, attributing it more to market mechanics like short squeezes than to fundamental improvements. For Crypto AI investors and researchers, this underscores the need to critically evaluate the underlying technology and value accrual mechanisms of L1s/L2s, as these factors will significantly impact platforms' suitability for hosting AI applications and their long-term investment potential.
