According to Bitwise CIO Matt Hougan, “Nobody likes Ethereum right now.” Ethereum
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/BTC ratio recently hit a three-year low of under 0.04, but there are plenty of reasons to be concerned, he said, adding that a potential downside move is possible as we head into the year-end.
Despite the promising start, the second-largest cryptocurrency by market cap has not had the best year so far, up just 1% so far this year, according to The Block’s Ether Price Page. On the other hand, while the crypto market has struggled over the past six months, Bitcoin is still up 42% in 2024, while Solana is up 27% so far this year.
“The community is feeling the pinch,” Hougan said in a note to clients late Tuesday, citing U.S. election risk, increasing competition from Solana, token economics challenges, and mixed performance from spot exchange-traded funds (ETFs) as key factors driving Ethereum’s slump.
According to Hougan, while a spot Ethereum ETF was approved in the US in July, the SEC still appears to view staking Ether as a security. He said that if Kamala Harris wins the presidential election in November and the Biden administration continues its skeptical stance on cryptocurrencies, Ethereum could face continued regulatory challenges.
Spot Ethereum ETFs themselves, including Bitwise’s ETHW, have also had mixed results compared to Bitcoin-based ETFs, with the newly launched fund seeing net inflows of $2.1 billion, while Grayscale’s high-fee incumbent ETHE saw net outflows of $2.8 billion.
In Hougan’s view, the backlash against Solana and other competitors is also filling the space. “It’s kind of cool that the crypto space is bullish on Solana and other new chains and bearish on Ethereum because of its old and expensive technology,” he said.
Finally, Ethereum has been so successful at moving volume away from Ethereum-based chains that it has been focusing on increasing transaction volume on layer 2 networks, which has led to revenues falling to a four-year low. “Many people are wondering if Ethereum is shooting itself in the foot by expanding away from its base layer 1 blockchain,” Hogan added.
Opposite bet
Despite the impact these challenges have on sentiment and prices, they miss the bigger point, according to Hogan.
While both Ethereum and Solana are trying to create a “public computer” for decentralized applications, Hogan said it’s Ethereum that has seen “almost all the groundbreaking success.” He noted that it powers more than half of the stablecoins issued on the network, more than 60% of DeFi assets locked on-chain, and has been chosen as the settlement layer for the increasingly popular prediction platform Polymarket.
BlackRock’s on-chain U.S. Treasury fund, with over $500 million in assets under management, is tokenized on Ethereum. Nike’s NFT platform is on Ethereum. Ethereum has the most active developers, the most active users, regulated futures, a multi-billion dollar ETF market, and has a market cap five times larger than its closest competitor, Hougan noted. The list goes on.
“It’s like the Microsoft of blockchain. Everyone wants to talk about Google, Slack, Zoom, and for good reason. Each of them has brought groundbreaking technology to market. But Microsoft is still bigger than all of them combined,” Hougan said.
That’s not to say Bitwise’s CIO is pessimistic about Solana or other chains, but in Hougan’s view, too many people are overlooking Ethereum’s already established success.
“No challenge for Ethereum seems existential, and opportunities abound. I think the market will re-evaluate Ethereum as the November elections and regulatory clarity approach. As of now, it looks like a potential contrarian play through the end of the year,” he concluded.
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