Author: Richard Chen
Compiled by: TechFlow
Last week, the price of Ethereum (ETH) fell back to the levels of the initial coin offering (ICO) in 2017. At that time, Ethereum was just a white paper and a token, and the market seemed to care little about the progress of the Ethereum developer ecosystem over the past 7 and a half years compared to the current situation with many real-world applications.
The bigger problem is that ETH needs a new narrative, a clear reason to attract people to buy the token. Let’s analyze the common narratives of ETH and explore why they are no longer valid.
1. “ETH is leveraged beta of Bitcoin (BTC).”
This statement has been true in past bull cycles, with altcoins generally outperforming BTC, and blue-chip altcoins acting as leveraged beta. Whenever BTC performs well, investors increase their risk exposure, resulting in better returns in altcoins.
This time is different. In January 2024, the launch of the Bitcoin ETF brought a new paradigm shift. Almost $100 billion has flowed into Bitcoin ETFs, which now collectively hold 5.7% of the BTC supply. In contrast, the Ethereum ETF has attracted only $5 billion in inflows. Unlike past cycles, the massive inflows into the crypto market, especially from large institutions, are now only flowing into BTC and no longer spreading to the rest of the market. BTC will always have natural demand from new funds that want exposure to crypto, but it is unclear whether other assets will have the same demand.
Bitcoin (BTC) is in a separate tier and is diverging from the rest of the market.
The second-layer effect of new money not flowing into altcoins is that we are facing a zero-sum speculative pool of money that rotates between different “casinos”. This was evident in the price action in the months after the election, with speculative money moving from Solana’s AI proxy memecoin to Hyperliquid and back to $TRUMP and $MELANIA. Without economic growth, crypto tribalism competing for zero-sum attention accelerates this rotation. Another second-layer effect of money not flowing into altcoins is that it hurts the venture capital market. The best-case scenario for token generation events (TGEs) is that funding for infrastructure projects is capped at billions of dollars, and the total available market (TAM) for other project categories is smaller. Private round valuations have also not fallen due to an oversupply of capital relative to founding talent. As a result, returns on crypto venture capital are compressing.
2. “ETH is ultrasonic currency.”
This is no longer true. In April 2024, ETH supply begins to reverse and increase again. In February 2025, ETH becomes inflationary since the merger. Therefore, the argument that ETH is a harder currency than BTC is no longer valid.
Ultrasonic Money’s argument is also somewhat middle-of-the-road. People new to crypto will buy into the scarcity narrative of “BTC is digital gold” without understanding the technical details of EIP-1559 and whether BTC or ETH is more deflationary.
Source: ultrasound.money
3. “ETH is digital oil.”
The problem with this framework is that ETH will therefore trade like a commodity, moving sideways and in a range. Commodities are valued based on supply and demand in the market, rather than as growth assets to buy and hold for the long term. To illustrate this, below are two charts comparing the performance of oil to the S&P 500 over the past decade.
USO
SPY
Oil has mostly traded in a range over the past decade, with only two exceptions: 1) the release of U.S. oil supply due to advances in hydraulic fracturing technology in early 2015 and 2) the COVID crash in early 2020.
Using the “digital oil” framework, if ETH enters the market due to renewed inflation but there is no marginal buying demand, the price will fall.
4. “ETH is the global settlement layer.”
Ethereum's long-term expansion roadmap has an inherent contradiction between two goals: 1) expansion will be pushed to the second layer (L2), and Ethereum will become the settlement layer; 2) L2's economic activities will accumulate value for ETH. When EIP-4844 significantly reduces the cost of publishing transaction data to the first layer (L1), this improves the scalability of L2, but also reduces Ethereum's revenue.
The bigger problem is that when L2 launches their own tokens, they become somewhat parasitic on ETH. L2 has a strong economic incentive to have value accrue to its own tokens rather than ETH. Therefore, L2 almost behaves like a competing L1, except for the technical differences in consensus mechanisms.
This has led to a decoupling of EVM (Ethereum Virtual Machine) adoption from ETH value accumulation. Ethereum’s greatest defensive strength historically has been its ecosystem of developer tools around the EVM — debuggers, fuzz testing tools, boilerplate contracts, etc. — that have been built up over years of open source development. It is much easier for new developers to build on the EVM than on a non-EVM chain that does not have as robust a developer tool infrastructure. With the EVM and ETH decoupled, EVM adoption can continue to grow as new L2s like MegaETH and new L1s like Berachain and Monad piggyback on the EVM ecosystem, but value accumulation goes back to their native tokens rather than ETH.
5. “ETH has the most economic activity of any chain.”
There could be a situation in the future where the total value locked (TVL) of stablecoins reaches an all-time high, decentralized exchange (DEX) trading volume reaches an all-time high, and other economic activity indicators reach all-time highs on Ethereum, but the ETH price still does not reach an all-time high because the price-to-earnings (P/E) multiple shrinks. In this case, ETH trades more like tech stocks such as Tesla (TSLA, 97x forward P/E) or Nvidia (NVDA, 24x forward P/E).
At the current annualized profit, ETH needs a 300x P/E multiple to reach a new all-time high again without any currency premium. Therefore, there is still a large downside risk of P/E compression.
What will happen next for ETH?
Perhaps ETH will rise due to mean reversion, or continue to underperform for the reasons stated above.
But before that, ETH needs a new narrative.
