Lacklustre ETF demand and mounting technical criticisms hit Ethereum in August, driving the asset’s largest monthly drop in more than two years.
“The marginal new buyer doesn’t see value at current prices,” Quinn Thompson, founder of crypto hedge fund Lekker Capital, told DL News.
And it could get even worse. Thompson said investors might not be tempted to buy until the price is “a fair amount lower from here.”
He pointed to the recently launched Ethereum exchange-traded funds, which many had hoped would buoy the second-largest crypto.
In their first 29 days of trading, Ethereum ETFs experienced $477 million of outflows.
Bitcoin ETFs, on the other hand, attracted $5.1 billion in the same period after their January debut.
Ethereum sentiment wanes
It’s not just a lack of institutional interest weighing on Ethereum.
“The sentiment around it is very poor,” Brian Rudick, a researcher at crypto trading firm GSR, said in an X post.
Rudick said the decline in network fees has contributed to that pessimism.
That’s because more Ethereum activity has moved over to more efficient layer 2 blockchains like Coinbase’s Base network. These layer 2s process more transactions at a lower cost, meaning fees on the main Ethereum network have plummeted.
This situation has made the once deflationary Ether token inflationary again — a dirty word among crypto users who often revile the money printing ingrained in the traditional financial system.
The poor sentiment is also reflected in the Ethereum derivatives markets.
Block Scholes Ethereum Senti-Meter, a tool that measures the sentiment expressed by crypto derivatives markets, produced readings below 40 out of 100 for the entire month of August.
Readings below 50 indicate a bearish bias.
In August, Ethereum’s price fell 22% to about $2,500.
The last time Ethereum experienced such an extreme monthly drop was in June 2022, when it fell some 45% amid a market wide wipeout caused by the collapse of the Terra blockchain a month before.
Competing with Bitcoin
There’s also the issue of where Ethereum fits in with competing crypto assets.
In recent months, presidential candidate Donald Trump has positioned himself as a pro-crypto candidate, promising to create a “strategic” national Bitcoin stockpile.
In response, Bitcoin has traded in lock step with Trump’s election chances.
While some including Lekker Capital’s Thompson have questioned the Trump-Bitcoin connection, crypto market maker Wintermute said the top crypto asset remains in demand as a “clear election proxy trade.”
With the larger Bitcoin as the go to crypto for those betting on a Trump election win, Ethereum has been cast aside, Wintermute said in a Friday note.
Rudick also noted how Ethereum is struggling to define itself in other ways.
“It’s stuck in the middle between Bitcoin as the best store of value, and Solana as the best high performance blockchain,” he said.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
