As Zaheer Ebtikar, a seasoned crypto investor with over two decades of experience in finance and technology, I find his analysis on Ethereum’s underperformance insightful yet concerning. My personal journey in crypto has been marked by an understanding that capital flows play a pivotal role in the market’s dynamics.
Zaheer Ebtikar, head of Split Capital’s investment division and its founder, believes Ethereum‘s poor performance in recent months can be attributed to mistakes in strategy by the Ethereum Foundation and changes in the flow of crypto capital. In a post on X (previously known as Twitter), Ebtikar suggests that there are two main reasons for Ethereum’s weak performance this cycle: first, a series of questionable decisions made by the Ethereum Foundation; second, a broader shift in the movement of funds within the crypto market.
Why Is The Ethereum Price Lagging Behind?
To start off, Ebtikar underscored the significance of deciphering the movements of capital within the cryptocurrency market. He pinpointed three main contributors to these capital flows: individual investors who interact with platforms such as Coinbase, Binance, and Bybit; private funds that liquidate and invest in ventures; and institutional investors who make direct investments through Exchange-Traded Funds (ETFs) and futures. Interestingly, he pointed out that retail investors can be the trickiest to measure, and are currently not as prevalent in the market, so they were omitted from his assessment.
2021 saw private capital leading as the biggest investment base due to a surge in interest for cryptocurrencies that attracted approximately $20 billion in fresh funds. However, as we stand today, ETFs and traditional investment vehicles have surpassed private capital as the main buyers of crypto. This shift is believed to be caused by a string of unsuccessful venture investments and lingering effects from past cycles, which have left Limited Partners (LPs) with a negative impression.
These venture companies and liquid funds realized they couldn’t afford to sit idly through another cycle, instead choosing to act more decisively. They started making more strategic attempts at liquid investments, frequently via private deals that involve tokens with a fixed supply such as Solana (SOL), Celestia (TIA), and Toncoin (TON). According to Ebtikar, these locked deals also opened up an intriguing prospect for many firms: there’s a thriving and viable world beyond Ethereum-focused investments that is experiencing growth, and its market cap development compared to ETH is substantial enough to warrant the investment’s underwriting.
He pointed out that investors understood that it would become more challenging to secure funds for venture and liquid investments. With retail capital not returning, institutional products turned out to be the sole viable option for a bid on ETH. As the third year anniversary of the 2021 vintage neared, Mindshare began splitting up, and products such as BlackRock’s spot Bitcoin ETF (IBIT) grew in credibility, serving as the standard reference for crypto. Private capital was left with a tough decision: either sell their core ETH holdings and shift towards lower-risk investments or wait for traditional players to step in and provide assistance.
This situation resulted in two distinct groups emerging. The initial group, active from January to May 2024, were early Ethereum sellers who chose to abandon ETH and invest in assets such as SOL instead. The second faction, operating from June to September 2024, recognized that the inflow of ETFs into ETH was insufficient and that a significant increase would be required for ETH’s price to receive sufficient support, as per Ebtikar’s observation.
Regarding institutional investment in Bitcoin, Ebtikar noted that when exchange-traded funds (ETFs) such as IBIT, FBTC, ARKB, and BITW were introduced to the market, they surpassed all reasonable expectations. He pointed out that their success was unprecedented, as he stated, “These products shattered any realistic goal that investors or experts could have envisioned.” Ebtikar highlighted that Bitcoin ETFs have now become some of the most successful ETF offerings in history. He went on to say, “Bitcoin has transformed from a minor component in typical portfolios to the sole conduit for fresh capital inflow into cryptocurrency at an unprecedented pace.
Even though Bitcoin experienced a significant increase, other parts of the market didn’t follow suit. Ebtikar wondered why this happened, noting that investors who are deeply involved with cryptocurrency, retail, and private capital had already sold off their Bitcoin holdings. Instead, they invested heavily in altcoins and Ethereum, making these two assets the cornerstone of their portfolios. As a result, when institutions began buying Bitcoin, fewer people within the crypto community reaped the benefits of this influx of new wealth. “Few within the crypto world gained from the newly created wealth effect,” Ebtikar stated.
Initially, investors found themselves rethinking their investment strategies, wrestling with what steps to take next. Traditionally, money in the crypto market would shift from high-risk assets like Bitcoin towards lower-risk ones such as Ethereum. Then, it was expected to move further down to less established altcoins. However, the experts’ predictions about a surge in Ethereum and similar assets proved largely incorrect. Instead, the market split, with the gap between asset returns widening significantly. Seasoned crypto investors and traders reacted quickly by investing in lower-risk options, and funds followed their lead to maximize profits.
They opted to minimize their investment in Ethereum, which is their primary asset. As SOL and similar cryptocurrencies began gaining momentum, ETH started losing its appeal, according to Ebtikar’s observation. He noted that a significant portion of the flow away from ETH shifted towards meme coins. In other words, Ethereum’s competitive advantage among crypto-savvy investors, who were the only group historically interested in purchasing it, appeared to have eroded.
Despite the launch of ETH spot ETFs, institutional investment in Ethereum has been relatively low. This situation has been likened to the “middle-child syndrome,” as Ethereum struggles to gain traction with institutional investors, cryptocurrency private capital, and retail investors. The asset is currently overshadowed by other assets such as SOL, TIA, TAO, and SUI that are garnering more investor attention.
As per Ebtikar’s perspective, the most promising route to take is by broadening the circle of potential investors who are institutionally affiliated. He proposed that Ethereum (ETH) could regain significant ground in the upcoming months if institutional investors decide to invest in this asset. Although Ethereum encounters substantial hurdles, it’s the only other asset with an Exchange-Traded Fund (ETF), making it likely to maintain this position for a while. This exclusive status presents a potential pathway toward recovery.
Ebtikar mentioned several factors that could influence Ethereum’s future trajectory. He cited the possibility of a Trump presidency, which could bring changes to regulatory frameworks affecting cryptocurrency. He also pointed to potential shifts in the Ethereum Foundation’s direction and core focus, suggesting that strategic changes could reinvigorate investor interest. Additionally, he highlighted the importance of marketing the ETH ETF by traditional asset managers to attract institutional capital.
Regarding potential changes in the Trump Presidency, Ethereum Foundation leadership, and promotion of the ETH ETF by financial institutions, Ebtikar noted there are multiple scenarios where Ethereum can still thrive. He expressed a guarded sense of optimism, implying that Ethereum’s future is not entirely bleak.
2025 is shaping up to be a pivotal year in the world of cryptocurrency, particularly for Ethereum. As Ebtikar sees it, this year could either undo some of the harm done in 2024 or exacerbate it further. He finished by saying, “We’ll have to wait and see.
At press time, ETH traded at $2,534.
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2024-10-14 11:11