By Joseph Harris
Translation: Blockchain in Vernacular
Ethereum is probably the worst performing project so far in this bull run. Throughout the bull run, ETH and its related assets seemed to lag far behind competitors such as Solana. As a result, market sentiment and narratives also shifted away from Ethereum and toward other competing platforms.
However, the unexpected approval of a spot Ethereum ETF could signal a change in fortunes for the second-largest crypto asset. That’s exactly what I want to explore today.
Why has Ethereum performed so poorly in this bull run, and is an ETF enough to turn things around?
Disclaimer: As always, this content should not be considered investment advice, nor is it a suggestion or recommendation to buy ETH or other crypto assets. Please remember that if you choose to invest in cryptocurrencies, it is very risky and you may lose all your invested funds. With that said, let's get started.
1. Why are there so many difficulties?
1) Outperforming expectations in a bear market
Price and narrative are deeply intertwined and highly reflexive. Price movements drive narratives and narratives drive price movements.
When asset prices change, people like to attribute that change to a specific reason or narrative. That narrative can attract additional capital to amplify the change.
Under the right circumstances, this can create a nice flywheel effect. The price of an asset will continue to move in one direction, and the sentiment around the asset will increase.
Therefore, we need to look back to the bear market to understand the beginning of Ethereum’s problems.
See, Ethereum has performed relatively well throughout the bear market, outperforming the vast majority of crypto assets.
Crucially, it also bottomed earlier than most assets — hitting its lowest point during the Three Arrows Capital crash, not during the FTX crash.
This means that in the bear market, ETH felt more momentum than most assets, and the atmosphere around it was generally good. But there weren't that many people to appreciate and buy it at that time, so the flywheel never started.
At the same time, relative outperformance in the bear market means that ETH is closer to its "fair" price than most other crypto assets. As the market improves, it has less ground to recover and less room to run. Once again, the flywheel is not running because even if overall market sentiment improves, there is not enough price action to move it.
Contrast this with one of the more hyped assets of this cycle, like Solana.
Solana was beaten down badly during the bear market. Its association with FTX meant that it was sold off heavily, creating a narrative that Solana was dead. Some projects even abandoned the chain entirely, further deepening this sense of despair.
All of this means that Solana is starting from a very low position when entering a bull run. The price of SOL is so disconnected from fair value that it is able to rebound sharply as soon as market sentiment turns positive. This creates a sense of recovery, supported by Solana true believers launching new developments and rebuilding the ecosystem.
Therefore, the narrative is easy to build, easy to believe, and easy to buy into. Many investors and traders did just that. They piled into Solana, driving SOL higher and higher.
For Solana, the flywheel is firmly in motion as soon as the bull run begins, while Ethereum seems to be stagnating.
If ETH had performed worse during the bear market, thus having more room to recover, then the atmosphere around it might have been completely different even if the price ended up being roughly the same. But, it had the wrong price action at the wrong time.
The result was that Ethereum was unable to capture any momentum or attention at the start of the bull run, becoming a minor player in a fickle and forgetful market. A brief and quite understandable period of underperformance was enough for bad sentiment to start to creep in, and a sense of malaise developed.
2) Narrative Dilemma
Worse still, from Ethereum’s perspective, the assets that experienced the biggest flywheel effects in the early stages of a bull run are the worst. Ethereum has been in a slightly odd position in the market, struggling to position itself properly:
On the one hand, it is a smart contract platform, and therefore ostensibly a technology application that competes with other platforms like Solana or Avalanche.
On the other hand, it places great emphasis on robustness, reliability, decentralization, and creating a strong and reliable currency. This puts it firmly in competition with Bitcoin.
This also creates a sense of conflict in Ethereum’s design as it strives to combine these competing goals.
It must be relatively conservative to meet its Bitcoin-like requirements. This prevents it from adopting a radical, high-throughput/low-fee design like many other smart contract platforms. However, it will never be as simple or conservative as Bitcoin itself. Ethereum must fight on two fronts with one hand tied, so it is already at a disadvantage.
Then, as the bull run began, Bitcoin and Solana performed the best and received the most attention. They took control of the narrative and squeezed Ethereum from both sides.
The idea of Solana’s resurgence has people thinking it can steal Ethereum’s thunder as the leading smart contract platform. Its low fees and initially superior user experience make it look like the future.
Why would anyone build on or use Ethereum if they can accomplish the same thing in a faster, cheaper, simpler — and overall better — environment? Especially when most people don’t care about “moneyness” and decentralization as much as Ethereum and Bitcoin users do.
Meanwhile, Bitcoin has benefited from ETFs and its thriving ecosystem, which includes Ordinals, fungible tokens, and native L2.
The ETF narrative gave the impression that Bitcoin was the only serious crypto asset that institutions could support. With billions of dollars pouring into newly launched funds, the “digital gold” thesis finally seemed to be paying off.
Meanwhile, Ordinals’ development is proving that Bitcoin can be used as more than just money. Like Ethereum, it could also be the basis for more complex computations and transactions.
If Bitcoin can do all of this while being more conservative and economically sound, then what’s the point of Ethereum? Surely anyone who truly cares about decentralization and a robust, reliable blockchain design will turn to Bitcoin.
If that wasn’t bad enough, Ethereum has taken a hit even in its relatively new “modularity” narrative.
Ethereum was supposed to be a widely interconnected chain and the base layer for higher-level scaling solutions. But that was not its original plan, and it is gradually moving in that direction, one upgrade at a time.
Then, Celestia came online, a new blockchain built specifically to fulfill the role Ethereum would eventually assume. And, like Bitcoin and Solana, it performed very well financially and narratively in the early stages of its bull run. Once again, Ethereum looked somewhat irrelevant.
Nearly every Ethereum narrative was simultaneously weakened, exacerbating the ongoing negative sentiment brought on by its own mediocre price action.
All the excitement and attention went elsewhere, and Ethereum was left to become a meaningless relic of the past.
In my opinion, this narrative attack is the main reason why there has been so much negativity towards Ethereum to date. Its very existence, its raison d’être, has been called into question. And, without a surge in activity or price, it has been unable to give a convincing answer.
3) Lack of buyers
Another factor behind Ethereum’s lackluster price action (and the negative sentiment that comes with it) is the lack of buyers to support the price.
Again, this is a case where Ethereum’s previous strong performance came back to haunt it.
In the last cycle, Ethereum was the consensus choice. ETH was pretty much the default asset for anyone serious about crypto.
Bitcoin, once the consensus choice, is starting to look a little old and out of touch. Compared to other crypto assets, it is often viewed as a tired little pet rock with relatively little growth potential.
Meanwhile, ETH sits at the center of a rapidly expanding ecosystem, hailed as the "future of finance." While there are other platforms like Solana with greater growth potential, only Ethereum comes close to matching Bitcoin's durability and reliability. From a risk/reward perspective, ETH is the clear best choice.
Once upon a time, Ethereum’s often contradictory narratives seemed to work in tandem, making it the perfect choice for anyone bullish on cryptocurrency.
You know it won’t let you down or have fundamental problems, but it’s still exciting and rewarding.
At the time, this was great for ETH — and it probably contributed to its outperformance during the bear market. But fast forward to today, and this has become a problem.
Almost all cryptocurrency investors who have participated in more than one cycle already own ETH. And if they don’t already own ETH, it’s likely because they have a clear reason not to — usually due to irreconcilable philosophical differences.
In other words, most people in the cryptocurrency space either already own ETH or they never will.
As the bull run begins, people who already hold ETH have no reason to buy more. Why should they prioritize the assets they already hold when so many undervalued assets look so attractive?
If anything, existing holders will likely sell some of the ETH they own in exchange for assets with better short-term prospects, leading to even worse price action.
Due to the lack of support from crypto natives, ETH needs crypto tourists and newcomers to step in. But the market has not seen an influx of new capital as many expected. In fact, we are still waiting for the general interest in cryptocurrencies to pick up and the next wave of users and investors to arrive.
Without them, ETH understandably struggled due to a lack of buyers.
To perform better, ETH needs to give existing holders a reason to increase their allocations, or find brand new buyers... Keep this in mind, we'll come back to this topic later.
4) Asset dilution
Worse still, the small amount of money that did enter the Ethereum ecosystem was spread across multiple assets.
This is because there are now a large number of Ethereum-related assets that can be considered “ETH Beta” - alternatives that should outperform ETH itself in a bull market environment.
Therefore, anyone who is bullish on Ethereum must decide the best and most profitable way to express that view.
For example, investors can choose Layer2Tokens such as OP and ARB. Or, they might consider staking-related tokens such as LDO. Or tokens from the Ethereum DeFi, NFT, or RWA ecosystems, such as UNI, BLUR, or ONDO. Maybe they will even like Ethereum-based meme coins such as PEPE or MOG.
There are so many different avenues to choose from, and so many different assets to consider if you are bullish on ETH.
Even if you want to keep it simple and just hold ETH, you still need to decide whether to hold native ETH, Liquid Staking ETH, or Liquid Restaking ETH.
All of this can create decision fatigue that may put some investors off.
Worse, it causes any incoming money to be spread across a variety of assets, reducing the stimulative effect that cash could have.
Ethereum isn’t the only one affected by this. After all, an investor might have to consider the pros and cons of buying SOL versus BONK, WIF, or PYTH. But the ecosystem around Ethereum is more developed, with more options, so the dilution effect is more significant. This obviously doesn’t help when Ethereum is already at a disadvantage.
5) Security issues
To make matters worse, there are concerns that ETH will be deemed a security by the U.S. Securities and Exchange Commission (SEC).
I’m sure you’ve heard about the investigation into the Ethereum Foundation and the concerns that PoS will turn ETH into a security. These fears will undoubtedly weigh on ETH and hinder its performance.
This goes against years of conventional wisdom that ETH is a commodity and therefore immune to SEC attack. Now the market has to consider and price in a worst-case scenario, such as Ethereum being delisted from major exchanges.
Furthermore, this threatens Ethereum’s appeal to institutional investors. After all, they may not want to invest in something that has so much uncertainty. And even if they could get it without an ETF wrapper, they might not want to.
You see, once a Bitcoin ETF is approved, people automatically assume that an ETH ETF will follow. It may take another lawsuit to force the SEC to act, so it may take a year or more to achieve this, but it looks pretty certain. This gives ETH a glimmer of light at the end of a long tunnel.
But security issues have all but dashed those hopes. Ethereum’s gloomy and pessimistic mood has only grown darker.
It feels like Gary Gensler and the SEC are suppressing something that was already at a low point.
6) Marketing issues
Finally I want to mention that Ethereans seem to have a hard time getting the word out about Ethereum. This is for two reasons:
First, many Ethereans have moved from Twitter to Farcaster over the past year or so. Even if they haven’t moved entirely, they’ve spent significantly less time on Twitter.
Yet Twitter remains the focal point for most crypto culture. With fewer Ethereans defending Ethereum and conveying the message, we end up experiencing a slightly distorted version of reality, shaped and dominated by Ethereum’s opponents. Negative messages appear more frequently than positive ones, both fueling and exaggerating the pessimism surrounding Ethereum.
The second is Ethereum’s emphasis on research, which some people find offensive.
When Ethereans discuss things on Twitter or other social media, their conversations are often hard to understand and filled with jargon, which alienates and perhaps even annoys potential users.
For example, a user might complain about an understandable problem with high transaction fees making small transactions impossible. But then see prominent Ethereans use incomprehensible and slightly nonsensical terms like “Proto-Danksharding.” This makes them feel like their issues are not being taken seriously.
Now, I don’t want to be too critical here. Ethereum — and blockchain in general — is incredibly complex and involves many difficult trade-offs that the average user cannot understand.
But again, Ethereans will never win the narrative war if they continue like this. As difficult as it may be, they need to find better ways to acknowledge the complaints of regular users while explaining in simple terms why certain design decisions were made and what is being done to help resolve the issues.
To be honest, this is probably impossible. Most people don’t want to understand why things are the way they are, or they don’t have the time to learn. Instead, they’ll think Ethereum is clunky and expensive because it uses old, outdated technology. And they’ll think famous Ethereans just don’t care because they’re rich and out of touch with the average person.
In the long run, this may not be a big problem. If Ethereum’s theory is correct, eventually people will use low-fee L2s without even noticing. They may not even know they are using an L2, let alone an L2 within the Ethereum ecosystem.
But until all the difficulties are abstracted away, users will notice Ethereum’s shortcomings and will complain about them. And these complaints will continue to fuel the negative vibe around Ethereum and make Ethereans appear out of touch. Unless Ethereans can streamline their message enough to break through the noise and explain their approach in a clear, digestible, and understandable way.
2. Will ETFs change the situation?
All of these factors have combined to contribute to ETH’s underperformance and the negative sentiment surrounding Ethereum over the past few months.
So the question now is, can ETFs help change this?
I think it will. Or at least it should change the picture if the broader environment and macro trends don't interfere.
This is because the approval of an ETF would address many of the reasons for Ethereum’s poor performance.
1) Security issue resolution
First, the approval of the ETF eliminates most of the concerns and uncertainties about whether Ethereum would be considered a security.
While it is still possible that the SEC could take some action against staked ETH, the impact of this scenario would not be as severe as if ETH itself were designated as a security. Therefore, the negative financial impact would be much smaller.
And even that threat now seems relatively unlikely.
The ETF approval appears to be a political move by Democrats, who are trying to position themselves favorably ahead of the election.
If they do hope to appeal to crypto voters — or at least not scare them — then pursuing something as radical as attacking the second-largest crypto asset would clearly be unwise.
So, Ethereum is suddenly out of its misery and the main arguments for avoiding investing in ETH have been overturned.
2) Attract new buyers
An ETF would also help address Ethereum’s lack of buyers.
Not only would it introduce Ethereum to a whole new and extremely wealthy group of institutional investors, it would also give crypto natives a reason to buy ETH again.
Many crypto natives may be caught off guard by the approval of an ETF. They may have sold ETH in the early stages of the bull market and switched to more attractive and better performing assets. But now their positions are insufficient and they will want to adjust.
Meanwhile, traders and short-term investors may flock back into ETH in an attempt to front-end and anticipate the launch of an ETF.
Then, once the ETF goes live, traditional financial funds will dominate price movements.
I don’t expect these funds to perform as well as the Bitcoin ETF, but I think their impact on ETH price and performance should be relatively similar in market size.
In the long run, ETFs open the door for a lot of wealth to flow into ETH and the Ethereum ecosystem. In short, ETFs should attract new buyers and capital into Ethereum in the short and long term, which is exactly what ETH needs to start rising again.
3) Reset the narrative
We have seen that price action and narrative are closely linked.
If the excitement and front-running of ETFs does cause ETH to outperform other assets in the short term, that might be enough to start the narrative flywheel.
At the very least, positive price action will reduce concerns about competitors like Solana and Bitcoin encroaching on Ethereum’s space. While the impact of price action on public opinion is somewhat absurd, it is a common phenomenon.
But the biggest narrative benefit from an ETF approval is that it reminds people of how unique and special Ethereum is compared to other “Altcoin.”
Ultimately, only two crypto assets were deemed reliable and respected enough to have an ETF in the near future. This suggests that, aside from Bitcoin, Ethereum is the only other crypto asset that is institutional-friendly.
Unlike Bitcoin, which continues to be positioned as digital gold, Ethereum is associated with technical encryption. Therefore, anyone in the traditional financial world who wants to get exposure to the most dynamic and high-potential areas of the crypto industry must buy ETH.
Once again we see that blend of time-tested reliability and excitement — the same blend that previously made ETH the default asset for crypto natives. Safe enough to invest, yet still offering big returns.
With the right marketing, Ethereum might even become more popular than Bitcoin among traditional investors.
Bitcoin already has a huge first-mover advantage in the market and better brand recognition, but its story is also relatively lackluster.
Most people don’t particularly care about gold, so they probably don’t care about digital gold either. But a lot of people like tech investments that grow fast and generate real returns — which sounds a lot like Ethereum.
Still, traditional finance players may already view Bitcoin as an exotic asset with high risk and high potential, so they may be reluctant to go further down the risk curve — even if the rewards may be slightly higher.
Therefore, I think the chances of ETH returning to being the default asset are relatively low — at least in the short term. But given enough time and clear information, it’s not inconceivable.
Even if it never happens, the launch of an ETF would be a significant moment — almost a reset point — for Ethereum and its narrative.
At the very least, this differentiates Ethereum from other smart contract platforms and provides some breathing room after Solana’s continued onslaught. It should help ETH rise alongside Bitcoin and Solana, rather than being swallowed by them. After a long period of erosion by its competitors, I think many Ethereum supporters will see this as a win.
4) Professional Marketing
The launch of an ETF might even help Ethereum solve its marketing problems.
Once the ETF goes live, ETF issuers will be responsible for promoting their products to potential customers. This means they need to start explaining what Ethereum is in simple terms — avoiding technical jargon and overly complex terminology.
While this may be a little too late for crypto natives, it should mean that traditional finance people have a slightly better introduction to Ethereum. Who knows, maybe some Ethereum supporters will absorb some of the marketing jargon and improve their own promotion efforts.
5) Reduce dilution
ETFs should also help alleviate dilution issues.
Of course, crypto natives will still allocate funds into various Ethereum-related assets in the hopes of maximizing returns.
However, the ETF itself will be limited to plain ETH. All inflows will be concentrated in Ethereum. Depending on how successful the launch is, this could mean a massive influx of money into a single asset — which could offset the dilution effect among crypto natives.
3. But are there risks?
From these analyses, an ETF would solve almost all of the issues that have led to Ethereum’s underperformance and negative outlook.
Some improvements may take time to show results—particularly things like marketing changes and the introduction of new institutional investors—but we should start to feel the benefits within the next 12 to 18 months.
If this is the case, it would be reasonable to assume that an ETF would wake up Ethereum, drive prices higher, and bring a more positive attitude to the space.
But of course, there is no guarantee that everything will go smoothly. There are many risks that could lead to failure and Ethereum could continue to slump.
Today, people are more inclined to believe the negative news about Ethereum. This is what happens when negative sentiment exists for such a long time. Therefore, Ethereum is particularly vulnerable to any negative surprises or price stagnation when these funds are launched. After all, it will confirm everyone's existing bias that Ethereum's time has passed and Ethereum is on its way to decline.
In a worst-case scenario, this negativity could even spread from crypto Twitter to the wider world, causing demand for ETFs to weaken. I don’t necessarily expect this to happen, but people are not always rational, and emotions can play a big role in investment decisions — even by so-called “smart money.”
Obvious short-term risks include much lower-than-expected ETF inflows or higher-than-expected Grayscale outflows. In either case, Ethereum could be significantly impacted.
The biggest problem in the long term is that Ethereum has failed to establish itself as an interesting or worthy asset to invest in traditional finance. They seem to have some interest in Bitcoin, so we all assume they will like Ethereum, but we don’t really know that yet. Clearly, the enthusiasm for an Ethereum ETF is nowhere near the same as the Bitcoin ETF — although that’s to be expected. But if Ethereum fails to generate interest or any excitement after its mainstream debut and marketing materials, it could be in trouble.
4. Does this really matter?
The final question worth pondering is: “Does any of this really matter?”
So what if ETH’s price performs poorly? The way Ethereum works doesn’t change just because of ETH’s price fluctuations. Whether ETH is worth $10 or $10,000, the network functions the same way — though the security may be different.
Additionally, this is all very focused on the short term, while Ethereum is focused on sustainability and long-term goals.
Price movements, market sentiment, and narratives are basically noise in the day-to-day operation of Ethereum. They do not have a huge impact on the operation of Ethereum.
However, the reasons why I write these are not so superficial. After all, I don’t usually focus on short-term price action.
The reason I think these questions are important is that the narrative and market sentiment surrounding protocols like Ethereum will impact their future success. What may seem like insignificant noise today may eventually form patterns and lead trends.
No one wants to develop on a chain that is perceived to be declining. No one wants to use that chain either — especially when there don’t seem to be enough developers creating exciting new opportunities.
This won’t happen overnight, but if Ethereum doesn’t start to improve its performance — if it doesn’t change the narrative and start to gain some momentum — then it will lose more and more activity to its competitors.
Its powerful network effects, considered nearly unbeatable today, will gradually be eroded.
The threat is not immediate and the risk is relatively low – at least for now.
Contrary to popular belief, Ethereum still leads its competitors in almost every meaningful metric. ETH is the only altcoin to have an ETF, which shows that it is ahead of its competitors in some ways. It may take years for platforms like Solana to have similar mainstream financial products.
But Ethereum cannot afford to be complacent, and it cannot afford to squander its lead. Especially when the crypto industry is so new and set to grow significantly in the coming years. Things can — and likely will — change faster than many expect.
Ethereum’s first-mover advantage, network effects, and long-term philosophy mean it has a good chance of becoming the dominant crypto platform in the foreseeable future.
But success is by no means predetermined. Whatever it does, Ethereum cannot allow the negativity to continue to exist for much longer. The upcoming ETF launch may be the best chance to dispel these negative sentiments.
