The Slow & Painful Death of Ethereum
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Cliff-Notes:
- Ethereum's reliance on narratives and hype has waned, leading to a significant decline against Bitcoin's strong performance this year.
- The ETH/BTC ratio breaking below 0.05 highlights Ethereum's struggle to maintain market dominance as Bitcoin continues to capture institutional interest and inflows.
- Bitcoin's fixed monetary policy and strong ETF inflows contrast sharply with Ethereum's faltering supply dynamics and lack of sustained investor interest.
Ethereum is getting throttled this year, and it was only a matter of time before it did. The second-largest BTC-adjacent asset has historically relied on narratives and hype cycles in order to perform well—now that narratives have all dried up, its price is left to fend for itself against the behemoth of Bitcoin, whose value proposition of absolute scarcity trounces Ethereum's "ultrasound money" pitch. Whatever that means. ETH is down 10.6% since January while BTC is up 42%:
The more important gauge of the staying power of Ethereum, and all of "crypto" by extension, is ETH/BTC. By removing dollars from the denominator, we can clearly see that from a market dominance perspective, all of "crypto" is on life support.
ETH/BTC has cratered through the key 0.05 level, an arbitrary threshold but crucial to the trading behavior of the two assets over the years. As Bitcoin has gained strength from a USD perspective, Ethereum has not been able to keep up.
If you think of ETH/BTC as an EKG, this is like a patient on life support. The Ethereum Foundation's $96-million transfer of ETH to a Kraken wallet last Friday was an open admission from the people who created it that a proverbial pull of the plug is underway:
Where Bitcoin has been able to capture institutional mindshare, from ETF launch all the way through 8+ months of trading, Ethereum was never able to capture it, much less hold onto it in the way that BTC has.
The US-based Ethereum ETFs have seen an 8-day streak of net outflows, totaling over $110 million. This is in stark contrast to the hot streak of the bitcoin ETFs following their launch, where they shattered volume and inflow records in their first 100 days, and are still experiencing strong net inflows. Over this same period of net outflows from the brand-new Ethereum ETFs, the 9 US-based Bitcoin ETFs have managed to scoop up ~$750 million in net inflows:
The "ultrasound money" narrative has also died on the vine. After the merge to a Proof of Stake consensus mechanism in 2022, Ethereum's supply was deflationary, but only for a time. After an upgrade back in March of this year, its supply has resumed its ascent, up 200,000 ETH in 5 months.
This is a key distinction: bitcoin's monetary policy is fixed, while Ethereum's is not. Though its supply declined for a time, miners have decided to reverse course and flip the supply schedule back positive due to the economic inviability of its current POS framework. Conversely, bitcoin's monetary policy is immutable, and changes for any reason can and will never be made:
Bitcoin's fixed monetary policy and absolutely scarce supply schedule are a breath of fresh air for investors who are keen on hedging themselves from unfettered monetary debasement. While ETH ETFs are off to an abysmal start, Bitcoin ETFs have managed to grab the number 3 and 9 spot in YTD net inflows amongst all US-based ETF products. For a brand-new asset class, this is substantial:
Nasdaq just filed to allow investors to trade Bitcoin options. As the financialization of BTC persists, the deterioration of the ETH ecosystem reflected in the price of its native token couldn't be a more stark contrast. As the only worthwhile asset in cryptocurrency becomes accurately priced by the market, so too does the suite of imitators that formed around it, as seen clearly with Ethereum.
Final thought: there is no second best. If you don't believe me, just look at ETH/BTC.
Take it easy,
Joe Consorti
Theya is the world's simplest Bitcoin self-custody solution. With our modular multi-sig vaults, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.
Download Theya on the App Store.