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The Market Is Wrong About Ethereum

Last Updated May 23, 2024 10:14 AM
Last Updated May 23, 2024 10:14 AM
By Hao Yang
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Key Takeaways
  • Ethereum’s resilience is underscored, despite its recent struggles in the market.
  • The broader political landscape and support from younger demographics could foster a more crypto-friendly regulatory environment.
  • Despite facing competition from Bitcoin and Solana, Ethereum maintains a significant role in the market.

Ethereum (ETH) is center stage as the U.S. Securities and Exchange Commission (SEC) asked applicants for the ETH exchange-traded fund (ETF) to update their filings this week in a move that increased the odds of approval.

In recent months, ETH has been the whipping boy of the crypto market, but are we seeing a turnaround for the second-largest crypto?

Political interest, narrative, and demographics

Even if the SEC delays or denies the applications—the first deadline is today, May 23—I expect the ETF to be approved eventually because the ETH futures ETF was approved in 2021, and, given this, there is no reason to deny a spot ETF.

While this point might seem obvious, it may still take a court battle to prove it. Still, when it comes to the BlackRock application, regulators may acquiesce rather than battle the Wall Street big boys in a case that’s very similar to the one they lost regarding the Bitcoin (BTC) ETF.

Furthermore, crypto policy is becoming a political issue, with most younger voters favoring a friendlier regulatory environment, which may lead to political pressure to improve crypto-government relations.

Until this story is resolved, the price of ETH will continue to be influenced by this narrative, unfortunately for ETH, which remains the most decentralized, battle-tested, and technologically brilliant piece of computer engineering ever invented.

I hope that Ethereum will be valued along these lines or the fact the blockchain is on track to generate over $4 billion in revenue this year due to demand for its NFT and decentralized financial services.

Sustained trust among serious investors?

Speculators have been writing Ethereum’s obituary on Twitter/X ever since competitor Solana (SOL) started outperforming. Indeed, Solana has been attracting huge inflows, drawing capital away from Ethereum, this year, increasing its daily active users to 30 million, compared to just 1 million on Ethereum, at the time of writing.

However, Total Value Locked (TVL)—representing the amount of capital present in the blockchain’s smart contracts—is $53.4 billion on Ethereum and just $4.4 billion on Solana. This reflects the diverging use cases: Solana is chosen for high-speed, low-cost transactions, while larger capital selects Ethereum.

From a retail user perspective, the slick, cheap interface of Solana apps is the best in crypto leading to its popularity. This can be seen in the Daily Active Users metric, which is up 126% on Solana YTD, compared to a 24% increase over the same period for Ethereum.

This increase in interest and capital has led to fast development on Solana, with exciting new products such as art/collectible market DRiP, exchange aggregator Jupiter, and a host of memecoins. Ethereum, in contrast, has been left in the dust, struggling to find a reason for retail users to return.

The choice between the two

But it’s a false dichotomy. Personally, I like both ETH and SOL as investments because they are optimized to capture different markets. Solana has done brilliantly for the outlined reasons, but ETH has many advantages that make it favorable for institutions, large transactions, and prestige art.

Firstly, it has the longest track record of any smart contract platform and is therefore trusted by investors who have chosen to park 57% of all the smart contract capital on Ethereum, compared to 4.64% on Solana. Naturally, Ethereum has been live since 2015, while Solana was launched in 2020.

Secondly, Ethereum has never experienced an outage in that time, while Solana has suffered outages of several hours and this year, struggled to handle the deluge of transactions, stalling some and delaying others, which lasted for two weeks.

If you were an institutional investor looking to put your products on-chain, which network would you choose?

Sure, split-second transactions might matter to traders. Still, institutions should have no issue with slightly longer settlements, given they are used to traditional finance, where settlement can take up to two days (something this crypto-native finds ludicrously slow in this day and age).

Appealing to diverse market segments

In exchange for a few more seconds to finality, these investors get the increased security of a more widely distributed and battle-tested network. They could also settle, say, tokenized money market funds on a 24/7, 365-day basis just based on what the customer does.

Indeed, BlackRock and Fidelity are already using Ethereum  due to its stability, signaling to the market that this is the place for large capital to do on-chain business.

The growth in on-chain art is becoming a full-fledged movement, the kind that art historians of the future will point to and say, “and then NFTs were invented.” A vanguard of new artists such as XCOPY, Matt DeLaurier, and Jack Butcher are selling 1/1 art pieces on-chain for massive sums, and it’s all priced in ETH.

It’s clear that ETH is the place for big money, institutional money, and art collectors, while Solana is the retail darling. And they can thrive together. There is room in the world for Rolex and Casio, it doesn’t have to be one or the other.

And even as ETH struggles against BTC and SOL, it does have a narrative and market fit that will lead to a flourishing future.

Disclaimer: The views, thoughts, and opinions expressed in the article belong solely to the author, and not necessarily to CCN, its management, employees, or affiliates. This content is for informational purposes only and should not be considered professional advice.