A number of investors have questioned our reluctance to hold ETH in our investment strategies, despite it being the second largest cryptocurrency by market cap by some distance.
Yet ETH has meaningfully underperformed BTC, falling from 0.087 BTC in November 2021 to 0.035 today, demonstrably supporting our stance.
In this article, we outline the reasons why ETH has underperformed, why the outlook continues to concern us and why we believe there are more attractive opportunities elsewhere.
- Shifting Demand Dynamics: The competitive landscape for Ethereum has transformed significantly, with Layer-2 solutions like Arbitrum and Base capturing substantial liquidity and transaction activity, often at Ethereum’s expense. Median fees on L2s are fractions of those on the main chain, diminishing the incentive to use Ethereum directly.
- Technological and Roadmap Challenges: While Ethereum’s roadmap promises high performance and low costs, delays and a lack of clear timelines hinder progress. L2 growth and innovation are outpacing Ethereum’s Layer-1 development, shifting market interest.
- Evolving Network Metrics: Ethereum’s transaction fees and staking yields have declined sharply, reflecting reduced network demand. The burn mechanism’s diminished impact due to lower fee revenue has further increased token inflation, challenging ETH’s value sustainability.
- ETF-Driven Price Dynamics: Recent inflows from ETH ETFs have bolstered demand and price temporarily, but their correlation with market performance suggests this growth is unsustainable without improvements in the underlying blockchain metrics.
