Bitwise: Ethereum is sluggish, but it's a great option for a contrarian bet
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Bitwise: Ethereum is sluggish, but it's a great option for a contrarian bet
As the November election approaches and regulatory clarity emerges, the market may reassess Ethereum.
Navigating Web3 tides with focused insightsAuthor: Matt Hougan, Chief Investment Officer at Bitwise
Translation: Luffy, Foresight News
Many people are spreading FUD about Ethereum. The ETH/BTC exchange rate has recently fallen to its lowest level in three years. While Bitcoin is up 38% year-to-date and Solana, Ethereum’s biggest competitor, is up 31%, Ethereum’s price has remained largely flat.
Ethereum is facing a slump for several reasons:
U.S. Election Risk: Ethereum faces significant uncertainty in the November election. Bitcoin has largely passed regulatory scrutiny—even SEC Chair Gary Gensler has acknowledged it is not a security—but Ethereum has not. The SEC appears to view staked ETH as a security and has expressed serious concerns about DeFi, the ecosystem that drives much of Ethereum’s value. If Harris wins and continues the Biden administration’s skeptical stance toward crypto, Ethereum could face headwinds.
Competition: Ethereum is under pressure from newer blockchains offering higher throughput and lower costs. Solana leads this charge, but other chains are also gaining ground. In the crypto market, some believe Solana and other emerging blockchains will overtake Ethereum, viewing Ethereum as technologically outdated and expensive.
Tokenomic Challenges: Over the past few years, the Ethereum community has focused on growing transaction volume across Ethereum Layer 2 networks rather than on the Ethereum mainnet itself. This strategy has been highly successful—transaction activity on Layer 2s like Base, Arbitrum, and Optimism is surging. However, the rise of Layer 2s has diverted substantial transaction volume away from Ethereum, causing Ethereum’s network revenue to fall to a four-year low. Many now wonder whether Ethereum has shot itself in the foot by moving away from Layer 1.
Mixed ETF Performance: Ethereum ETFs have not seen the same overwhelming success as Bitcoin ETFs. While the newly launched ETFs have raised billions of dollars, outflows from Grayscale’s Ethereum Trust (ETHE) have already exceeded $2.7 billion, dwarfing those inflows.
These are valid concerns, but I believe people are overlooking something more important.
In the big picture, blockchains like Ethereum and Solana are all attempting to build a “public computer”—a global database anyone can use to build applications. But when you look at platforms behind the most groundbreaking successes, the dominant foundation is overwhelmingly Ethereum:
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Stablecoins: More than half of all stablecoins are issued on Ethereum.
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Decentralized Finance (DeFi): Over 60% of DeFi assets are locked on Ethereum.
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Polymarket: The breakout prediction market platform runs on Ethereum.
There are many more examples.
This year, when BlackRock wanted to launch a tokenized money market fund, it chose Ethereum—the fund now manages over $500 million in assets. When Nike launched its Web3 fashion platform called .Swoosh, it built on Ethereum. When the next major traditional company wants to launch a blockchain product, I’d bet they’ll choose Ethereum too.
Ethereum has the most active developers and the most engaged users. Its market cap is five times larger than its nearest competitor. It’s the only programmable blockchain with a degree of regulatory acceptance in the U.S., backed by a thriving regulated futures market and a multi-billion-dollar ETF market.
It’s like Microsoft in the blockchain world. Everyone wants to talk about Google, Slack, and Zoom—and rightly so: they’ve each brought transformative technologies to market. But Microsoft remains larger than all of them combined.
This isn’t to say I’m bearish on Solana or other blockchains. They’re making real impacts and have much to offer. But I believe people are underestimating Ethereum’s real-world asset traction and ecosystem strength.
To me, Ethereum’s challenges don’t appear existential, and its opportunities remain vast. I suspect that as we approach the November election and gain regulatory clarity, the market may reassess Ethereum. For now, it looks like a solid contrarian bet before year-end.
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