Bernstein sees a “strong revival of interest” in Ethereum, given its strong fundamentals, while noting that the cryptocurrency has significantly underperformed its Bitcoin counterpart year-to-date.
Ethereum has risen about 59% year-to-date, compared to Bitcoin's 124% rise.
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However, Ethereum’s recent performance shows promise. Over the past 30 days, Ethereum is up 46%, outperforming Bitcoin’s 41% gain, suggesting that Ethereum could be on the rise again.
Key factors driving this optimism include strong staking dynamics, flat transaction fees, and growing institutional interest, particularly through ETFs.
Bernstein analysts note that while Ethereum faces competition from faster networks like Solana and individual user experiences on layer-two solutions, the underlying supply and demand dynamics remain favorable.
Currently, 28% of the Ethereum supply is tied up in staking contracts, yielding a 3% annual return. Another 10% is tied up in lending or tied up in layer 2 chains. Furthermore, nearly 60% of the Ethereum supply has not been traded in over a year, indicating strong commitment from investors.
Institutional interest has also picked up, with Ethereum ETF inflows accelerating dramatically. Total assets under management now stand at $11 billion, and recent weeks have seen net inflows mirroring outflows from Grayscale’s ETFs.
Bernstein sees potential for further momentum, particularly if regulatory approval allows asset managers to incorporate Ethereum returns into ETFs, which could boost returns to 4-5% as blockchain activity increases.
Ethereum’s scalability model, which is based on layer 2 chains, has led to a significant increase in blockchain activity, with daily transactions on layer 2 solutions exceeding 15 million transactions, compared to 1 million transactions on Ethereum’s base layer.
Ethereum holds a 63% share of the total value locked in blockchains, indicating a high level of trust for major retail whales and institutional users.