Written by Matt Hougan, Chief Investment Officer at Bitwise
Compiled by: Luffy, Foresight News
Many people are FUDing Ethereum, and the ETH/BTC exchange rate recently fell to its lowest level in three years. Ethereum prices are basically flat since the beginning of the year, while Bitcoin is up 38% and Ethereum's biggest competitor Solana is up 31%.
Ethereum is in a slump for many reasons:
US Election Risks: Ethereum faces significant risks in the November move. Bitcoin has largely passed regulatory scrutiny, with even SEC Chairman Gary Gensler admitting it is not a security; Ethereum has not. The SEC appears to believe that staked ETH is a security, and the agency has big concerns about the DeFi ecosystem that drives much of Ethereum’s value. Ethereum could face challenges if Harris wins and continues the Biden administration’s skeptical approach to cryptocurrencies.
Competitors: Ethereum faces competition from new blockchains that offer higher throughput and lower costs. Solana is a leading example, but other blockchains are beginning to crowd in. Some in the crypto market are bullish on Solana and other new blockchains, arguing that Ethereum’s technology is old and costly.
Token economics challenges: Over the past few years, the Ethereum community has decided to focus on growing transaction volume around Ethereum’s Layer 2 network, rather than the Ethereum blockchain itself. This move has been a huge success: transaction activity on Layer 2s such as Base, Arbitrum, and Optimism is soaring. But the rise of Layer 2 has caused a large amount of transaction volume to shift away from Ethereum, and the revenue of the Ethereum network has dropped to its lowest level in four years. Many people wonder if Ethereum has shot itself in the foot by breaking away from the Layer 1 blockchain.
ETFs have had a mixed performance: Ethereum ETFs have not been as overwhelmingly successful as Bitcoin ETFs. While newly launched ETFs have raised billions of dollars, the Grayscale Ethereum Trust (ETHE) has far outpaced those funds with $2.7 billion in outflows.
These are all valid reasons for concern, but I think people are missing something more important.
In the big picture, blockchains like Ethereum and Solana are indeed trying to create a “public computer”: a global database that anyone can use to build applications. But when you look at the ones that have achieved breakout success, their primary platform is almost always Ethereum:
Stablecoins: More than half of all stablecoins are issued on Ethereum.
Decentralized Finance (DeFi): More than 60% of DeFi assets are locked in Ethereum.
Polymarket: Breakthrough prediction markets on Ethereum.
There are many more examples like this.
This year, when BlackRock wanted to build a tokenized money market fund, it chose to build it on Ethereum, and the fund now has over $500 million in assets under management. When Nike launched its Web3 fashion platform called .Swoosh, it chose to build it on Ethereum. When the next big traditional company wants to do a blockchain product, I bet they’ll choose Ethereum, too.
Ethereum has the most active developers, the most active users, and a market cap 5x that of its closest competitor. It is the only programmable blockchain with some level of regulatory support in the US, with a thriving regulated futures market and a multi-billion dollar ETF market.
It’s like the Microsoft of blockchain. Everyone wants to talk about Google, Slack, and Zoom, and for good reason: They all brought game-changing technology to the market. But Microsoft is still bigger than all of those companies combined.
This doesn’t mean I’m pessimistic about Solana or other blockchains. They are making a big impact and there’s a lot to be excited about. But I think people are overlooking the success of Ethereum and its ecosystem in the real-world asset space.
None of Ethereum's challenges seem life-or-death to me, and its opportunities are numerous. I suspect that as the November election approaches and regulatory clarity emerges, the market may re-evaluate Ethereum. For now, it looks like a good contrarian bet before the end of the year.
