TLDR: It has been painful for ETH holders (most of us) watching Ether underperform Bitcoin on the one side and Solana on the other. A reason Ether price action is lackluster seems to be – paradoxically – the success of its Layer 2 roadmap. Ethereum now not only faces competition from alternative Layer 1s but also from its own Layer 2s. There is hope, though.
There was a time (early 2021) when every altcoin under the sun exploded. Many of these coins traded on Ethereum. Degen traders would hardly skip a beat coughing up 100 dollars in ETH gas fees for the privilege of buying 500 dollars of a new shitcoin. The 5x in four weeks would make up for it, right? And there were no real alternative chains where you could do these things.
Fast forward three years and we’re still apeing into meme coins, but this time we also do it on Base or Solana. Ethereum no longer has the near-monopoly on launching and trading experimental new coins. Does this explain the price? Just look at this graph of the ETH price in dollars.
Initial ETH Spot ETF Inflows Lag Early BTC Inflows
Amidst poor price action, the spot ETFs that launched in July 2024, were reasons for hope. So far, they haven’t lived up to their promise.
Below is a graph (source: Coinglass) of spot ETH ETF inflows the first month after they launched. It’s been net negative over the first month (how is this even possible? Because the Grayscale Ethereum Trust, which already existed but was converted to an ETF, had a lot of outflows).
Compare that to the first month of BTC spot ETFs, back in January/February 2024.
You see the BTC ETF launched under a better constellation. It had big net inflows in the first month.
Setting price action aside for a second, let’s dive into a few potential reasons for Ether’s lackluster performance, before we conclude with a hopeful take.
1. Ethereum is Already Too Big
A first potential reason: as ETH has grown in market cap, it’s become harder to drive significant growth. As Ethereum’s market cap has swelled to hundreds of billions of dollars, the influx of new capital required to significantly increase the price of ETH becomes larger. Early in its lifecycle, smaller amounts of investment could cause substantial price increases. Not anymore.
But does this argument hold up? Compared to Solana, yes. But more broadly, not really, as it can’t explain that ETH has gone down measured in BTC. And Bitcoin of course has a much higher market cap.
2. Bad User Experience
Another argument one hears a lot for Ether’s bad performance, is the poor interoperability between Ethereum’s and its layer 2s. It has created a fragmented and frustrating experience for users, while Solana offers a smoother, more integrated experience.
Since these L2s are separate networks, moving assets (like tokens) between them often requires using bridges. Bridging can be a cumbersome process, involving multiple steps, waiting periods, and sometimes significant fees. This adds friction to the user experience. It’s also not great that if you want to use Aave on a Layer 2, you’re facing a fragmented landscape. Will you pick Aave on Arbitrum, Aave on Polygon? It complicates matters.
It’s hard to argue with this. Let’s say I want to dedicate a few weeks hunting for…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
