Crypto markets have been underperforming over the past few weeks as a lack of price momentum weighs on investor confidence. Price action has been choppy since the deleveraging event in early August, largely driven by technicals (supply and demand). Crypto markets have lagged behind US equities on a risk-adjusted basis, especially as US equities have largely recovered their losses since then. Institutional investors remain focused on Bitcoin, with Bitcoin’s market cap dominance reaching its highest level since April 2021 (57%).
Among major cryptocurrencies (by market cap), Ethereum (ETH) has significantly underperformed its peers, recently trading 1.6 standard deviations below its three-month average. Many experts have attributed this performance to reduced Ethereum activity (driving revenue lower) or ETH's unfavorable token inflation dynamics, which we believe is only partly to blame. In fact, we have previously discussed the trade-offs inherent in Ethereum's Layer 2-focused scaling roadmap and the impact this has on ETH's value.
September’s seasonal bearishness is typically associated with the end of the fiscal year for many mutual funds, which could be a trigger for this market group to cut risk to achieve tax-loss harvesting. However, we believe that this year’s poor market behavior (observed in both traditional risk assets and cryptocurrencies) has also been exacerbated by uncertainty about how the outcome of the US election will affect the overall economy. This may have kept many investors on the sidelines, especially with the macroeconomic environment already quite ambiguous.
Ethereum's recent performance has continued to be sluggish. Although it rebounded yesterday, the increase was not as large as that of mainstream public chain currencies such as Bitcoin, Solana and BNB. ETH even fell to US$2,150 on September 6, almost wiping out its gains since the beginning of this year.
Examining ETH’s underperformance
Meanwhile, among the higher-cap cryptocurrencies, ETH has been underperforming the likes of BTC and SOL, even after the launch of an Ethereum spot ETF in the U.S. in late July. There has been intense speculation among institutional investors as to why this is the case. The prevailing view is that this performance is a result of a decline in total Ethereum transaction fees and transaction counts, particularly following the Ethereum Cancun upgrade in mid-March. The introduction of blobs is thought to have led to unprecedented levels of transaction activity for Ethereum’s layer 2 scaling solutions (L2s) — which is not good for Ethereum’s mainnet. Many believe that this has not only impacted the value of ETH, but has actively contributed to the reversal of ETH’s deflationary supply conditions.
Whales continue to sell Ethereum
Ethereum's rebound is not as strong as other currencies, which may be due to the continued selling of whales. According to Ai Yi, an on-chain analyst, the ancient whale that ICO's 1 million ETH recharged another 451 ETH to the exchange OKX at about 11 o'clock last night, worth $1.03 million.
A total of 1,411 ETH have been sold in the past week, with a total value of US$3.33 million. Currently, there are only 13,694 ETH (worth approximately US$32.09 million) left in the address.
At the same time, Lookonchain monitored that the digital asset management platform Metalpha transferred 10,000 ETH (worth approximately US$23.45 million) to the exchange Binance earlier.
In the past 4 days, Metalpha has transferred a total of 33,589 ETH (worth approximately US$77.55 million) to Binance. Currently, Metalpha still holds 51,300 Ethereum (worth approximately US$120 million).
Vitalik: Ethereum Foundation spends 15% of its remaining assets every year
Yesterday (9th), the Ethereum Foundation also sold 450 ETH again, worth about $1.03 million. In the past eight months, the foundation address has sold a total of 3,066 ETH on the chain, with a total value of $8.68 million, and an average selling price of $2,830 per ETH.
The Ethereum Foundation's continued selling of coins has caused dissatisfaction in the community, and some community members have even become numb to it. Recently, Ethereum co-founder Vitalik Buterin responded to the question of "how long can the Ethereum Foundation's funds last" on Reddit AMA. He said that in theory, the Ethereum Foundation can operate forever:
The current budget strategy is roughly to use 15% of our remaining funds each year. This approach means that the Ethereum Foundation can theoretically operate forever, but over time its influence in the entire ecosystem will gradually decrease.
V God’s lack of attention to DeFi is one of Ethereum’s biggest problems
In addition, Haze, a researcher with more than 90,000 followers, tweeted today (10) to reflect on the value of Ethereum, pointing out that DeFi is not valued by Vitalik and MetaMask is not enterprising, which he believes are the two major problems of Ethereum.
If there is anything to criticize, I think DeFi is indeed the most valuable product ecosystem on the Ethereum mainnet, but I don’t understand why Vitalik Buterin has always looked down on it.
Another thing is that the experience of MetaMask, the largest wallet application, is getting worse and worse. This is what everyone is most worried about. As it becomes larger, it becomes more bureaucratic and biased, and lacks the sharpness and aggressiveness of the early days.
Ethereum ETFs Fail to Stimulate New Inflows and Exacerbate Declines
Data shows that among the 34 trading days of the Yitai ETF, only 9 days recorded positive net flows, and the rest were days when the ETF showed negative cash flow or close to zero cash flow. The price of Yitai has also officially entered a decline since it hit the latest peak of 3,400 after the ETF was approved.
Cumulative net flows of the ETH ETFs to date are -562M MG. Grayscale’s ETHE accounts for the majority of the outflows.
Ethereum whales stop increasing their holdings
Other data shows that Ethereum whales stopped increasing their holdings after the approval of the Ethereum ETF. It is on-chain data about the number of Mega-Whale wallets. These wallets have a balance of more than 10,000 Ethereum, which is more than 23 million at the current price.
At the same time, these three points defend the value of Ethereum:
1. ETH has never completely crashed since its inception, and even during the peak of DeFi, it has proven its excellent stability.
2. Many people believe that the L2 strategy has diverted users and funds from ETH itself. In my opinion, this is a clear path for ETH to become the world's computer and underlying settlement chain. L2 is used to undertake users and applications, and solve C-side experience such as fees and speed; ETH itself solves the security and stability required by the B-side.
Moreover, Sony, Coinbase and other companies have directly used L2. These companies are not stupid. Security and stability are guaranteed by the ETH mainnet. You can directly launch a chain to meet your needs with one click, which improves efficiency.
3. He who wears the crown must bear its weight. The disappointment with ETH in this cycle stems from the expectation that it will lead innovation, not the disappointment with the public chain itself. There is a difference.
