The ETH vibes are ‘tough,’ Bitwise CIO says

The vibes are off for Ethereum right now.

And it seems that Vitalik Buterin singing at Token2049 isn’t the bullish signal everyone’s looking for.

But it’s not Buterin’s fault given that Bitwise’s Matt Hougan penned a note on ethereum ahead of the network creator taking the stage. Hougan pointed out that the ETH/BTC ratio hit its lowest level in three years. ETH has struggled with upward momentum in the past few quarters, unlike both bitcoin and solana.

“The vibes in the community are tough,” Hougan wrote.

It’s a fair, if somewhat unfortunate statement given that some believed the momentum around ETH could pick up after ETF approval earlier this year. Bitcoin received ETF approval earlier this year and then carved out all-time highs just a few months later, and ETH tracked the momentum like a loyal dog.

But no such move manifested for ETH when its own ETFs were launched.

“A key factor is the timing of Ethereum ETFs, which launched during the summer — a typically slower period for both the crypto and ETF markets,” Federico Brokate of 21Shares told Blockworks. “This is also partly due to Ethereum having a less straightforward narrative compared to Bitcoin, which is widely regarded as ‘digital gold.’”

Hougan said that there are a few other reasons as well: the election risk, competitors and tokenomics.

“While Bitcoin has largely passed regulatory scrutiny — even [Securities and Exchange Commission] Chair Gary Gensler admits it’s not a security — Ethereum has not. The SEC appears to think that staked ETH is a security, and the agency has significant worries about the broader DeFi ecosystem that drives much of Ethereum’s value. If Harris wins and continues the Biden administration’s skeptical posture toward crypto, Ethereum could face challenges,” he added.

ETH has, in a legal sense, notched a few wins. The SEC dismissed its investigation into ethereum over the summer. And, more recently, the eToro settlement gave some indication into the SEC’s current thought process.

It seems as if the SEC is dismissing any potential action against ETH by allowing the US-based trading platform to continue offering ether to customers. Keep in mind that the settlement cut quite a few of its offerings.

Neither Hougan nor Brokate are too concerned about the potential death of Ethereum. They’re both cautiously optimistic that it’ll bounce back and that the “price of ether will ultimately reflect the growing adoption of its various use cases,” Brokate said.

“There are several positive catalysts for Ethereum. Investor education will be key to driving further adoption. As Ethereum’s narrative around real-world assets, tokenization and decentralized finance becomes better understood by both retail and institutional investors, demand is expected to grow. Ethereum’s role as a technological innovator is also gaining traction, particularly among those with a deeper understanding of blockchain technology,” he continued.

Hougan pointed to Polymarket’s dependence on ETH — even though Polymarket runs on Polygon, it “ultimately settles on Ethereum.” There’s also the fact that over half of all stablecoins are issued on Ethereum, according to data from rwa.xyz.

To Hougan, Ethereum is the “Microsoft of blockchains.” It is perhaps an apt comparison given that Microsoft is one of the largest tech giants, and yet isn’t seen as particularly sexy. Remember all of the hype around the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) a few years ago? Microsoft was notably left out. Though that never meant it was not competitive in its industry.

“Ethereum remains a foundational technology platform with immense potential. Although it may lag behind Bitcoin in terms of brand recognition, its role in decentralized finance, tokenization and as a programmable blockchain makes it a crucial part of the future digital economy,” Brokate explained.

“Ethereum represents a bet on blockchain innovation, which will only grow in importance as tokenized assets and decentralized financial applications continue to expand. While short-term bearishness may persist, the long-term outlook for Ethereum remains highly positive.”

Perhaps, like Microsoft, Ethereum just needs some time to fully blossom in the eyes of adopters and investors. With FAANG’s fall from grace, Microsoft finally got a seat at the table in the new grouping of the Magnificent 7.

“Despite these short-term headwinds, Ethereum’s fundamentals remain strong. The number of developers joining the Ethereum ecosystem is higher than ever, with more projects launching on the network and an expanding range of use cases. These developments should provide solid support for ETH in the long term,” Brokate said.

A modified version of this article first appeared in the daily Empire newsletter. Subscribe here so you don’t miss tomorrow’s edition.

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