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Original title: A Contrarian Bet on Ethereum
Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: 0xjs@Bitlink Vision
No one likes Ethereum at the moment.
ETH/BTC (the ratio of Ethereum price to Bitcoin price) has recently fallen to its lowest level in three years.Ethereum prices have remained flat so far this year, while Bitcoin has risen 38%, and Ethereum’s main competitor Solana has risen 31%.
The community atmosphere is tough.
There are many reasons why Ethereum is in a downturn:
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Election Risks:Ethereum faces significant risks in the November election.While Bitcoin has largely passed regulatory scrutiny—even U.S. SEC Chairman Gary Gensler admits it is not a security—Ethereum hasn’t.The U.S. SEC seems to think that pledged ETH is a security, and the institution has significant concerns about the broader decentralized financial ecosystem that drives most of Ethereum’s value.Ethereum could face challenges if Harris wins and continues the Biden administration’s skepticism about cryptocurrencies.
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Competition from Solana and other projects intensifies:Ethereum faces increasingly fierce challenges from new blockchains that provide higher throughput and lower costs.Solana is a key example of this, but other existing and upcoming projects are also beginning to pour into the field.In the cryptocurrency circle, it is a bit popular to be optimistic about Solana and other new chains, because Ethereum has older technology and higher costs.
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Problematic Token Economics:Over the past few years, the Ethereum community has decided to focus on increasing transaction volume on the “Layer2” network around Ethereum, rather than on the core (or “Layer1”) Ethereum blockchain itself.This has been a huge success – transaction activity on layer 2 networks like Base, Arbitrum and Optimism is soaring.But the rise of layer 2 networks has shifted so much transaction volume from Ethereum that its revenue has dropped to its lowest level in four years.Many people doubt whether Ethereum shot itself in the foot by expanding from the basic one-layer blockchain.
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Mixed ETF results:Ethereum ETFs have not achieved overwhelming success as Bitcoin ETFs.While the newly launched ETF has raised billions of dollars, the $2.7 billion outflow from Grayscale Ethereum Trust (ETHE) completely offset that growth.
These are all good reasons for worrying.But I think they ignore the broader points.
From a macro perspective, blockchains like Ethereum and Solana are all trying to create a “public computer” — a global database that others can use to build applications.But when you see which applications have achieved breakthrough success, they are almost all dominated by Ethereum:
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Stablecoin:More than half of the stablecoins are issued on Ethereum.
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Decentralized Finance (DeFi):More than 60% of DeFi assets are locked on Ethereum.
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Polymarket:The breakthrough forecasting market is ultimately settled on Ethereum.
There are many other examples.
When BlackRock wanted to build a tokenized money market fund this year, it was built on Ethereum; the fund now manages more than $500 million in assets.When Nike launched a Web3 equip platform called .Swoosh, it was launched on Ethereum.When the next big traditional company wants to make a blockchain product, I bet they will choose Ethereum too.
Ethereum has the most active developers and the most active users, and its market value is 5 times that of its closest competitors.It is the only programmable blockchain with some regulatory support in the United States, with a thriving regulated futures market and a multi-billion dollar ETF market.
It’s like Microsoft in the blockchain space.Everyone wants to talk about Google, Slack, and Zoom, and there’s a good reason: Each of them brings game-changing technology to the market.But Microsoft is still bigger than they add up.
This doesn’t mean I’m not interested in Solana or other chains.They are making a big impact and there are a lot of exciting things to do.But I think people are too quick to ignore Ethereum and the real-world success we have seen in their ecosystems.
In my opinion, Ethereum’s challenges seem to be life-and-death, but its opportunities abound.I suspect that as we approach November’s elections and any regulatory clarity that appears, the market may reevaluate Ethereum.Currently, by the end of this year, it looks like a potential reverse investment.
