When ETH first started underperforming, the bulls dismissed the bears with confidence. After all, history suggested that ETH would follow BTC’s lead and eventually rally to new all-time highs. But that confidence has faded. Now, many are starting to worry that ETH’s struggles could continue, even to the point of eventual irrelevance. ETH holders everywhere are left asking the same question. Can it ever recover? That’s why today we’ll break down exactly why ETH has been underperforming and whether the bulls might still have the last laugh. My name is Guy and you are watching the Coin Bureau. I’ll start by saying that this video is purely for educational and entertainment purposes and nothing contained within is financial advice. Also note that some members of the Coin Bureau team hold ETH as part of their crypto portfolios, including yours truly. As always though, we will remain objective in our analysis. And if you want to see which other cryptos we hold and which ones we’re considering buying, then you can become a member of the Coin Bureau Club where you’ll also find weekly reviews of promising small cap and midcap altcoins and daily alpha and insights from the Coin Bureau team and much more besides. The link will be down in the description. Now, unless you’ve been living under a rock, you’ll know that Ethereum’s performance has been so poor that it’s basically become a meme. While BTC has rallied to new all-time highs, everyone has been watching the second largest crypto by market cap, waiting for it to make similar moves. And well, let’s just say, we’re still waiting. Last March, BTC broke above its previous all-time high of around $69,000 and then rallied to $19,000 before the recent retracement. Now, this is significant because historically investors will rotate out of BTC and into ETH, meaning that ETH’s price action usually follows BTC’s quite closely. However, at the time of shooting this video, ETH has yet to reclaim its 2021 high of around $4,900. In fact, Ethereum is one of the only major altcoins yet to experience any price movements for us to get excited about. During this cycle, ETH’s price has struggled to break above the key resistance level of $4,000, significantly lower than its previous all-time high. And what’s more is that while the market overall has taken a beating lately, ETH’s price has fallen to levels last seen in the bare market. Yikes. What’s crazy though is just how much ETH has struggled against BTC. Considering that both are seen as monoliths in crypto, both of them are go-to destinations for investors of all kinds, be they retail or institutional. Both assets are even accessible to traditional investors as well, since both Bitcoin and Ethereum have their own US spot ETFs. And yet, you only have to take a look at ETH’s price against BTC to see that Ethereum has been bleeding against Bitcoin since September 2022 with no signs of that slowing down. All in all, then it’s not looking good, bro. this begs the question of exactly why Ethereum has been struggling so badly. In the eyes of many, the biggest thing hurting ETH’s price is the massive number of layer 2s within Ethereum’s ecosystem. Now, as you’ll know, Ethereum has long struggled with scalability. And in fact, Ethereum devs have been exploring ways to scale the network almost since it launched. Now, the original plan was sharding, wherein the Ethereum blockchain would be split into smaller chunks called shards. However, as Ethereum co-creator Vitalik Buteran explained in a recent blog post, these shards would be treated by protocols as different chains causing all sorts of issues for users and developers. As such, the focus has now shifted to a more modular architecture with Ethereum adopting layer 2 scaling solutions that can process transactions much faster and at a fraction of the cost. This allows Ethereum to stay competitive against the so-called Ethereum killers which emerged last cycle and in some cases have been eating Ethereum’s lunch this time around. This modular architecture also adds additional flexibility to the overall network since each layer 2 can be customized for different use cases. Ironically enough though, this has essentially caused the same issues as sharding with liquidity being severely fragmented. Many believe that liquidity fragmentation is the biggest reason why ETH’s price has underperformed and layer 2 have arguably stolen some of the venture capitalist mind share too. Many VCs believe that investing in layer 2 infrastructure is one of the biggest opportunities in the crypto industry. Picks and shovels if you will. And let’s just say that Ethereum sharding wouldn’t make it possible to launch new tokens that could then be dumped on retail. Now, the other issue with layer 2s is that they add another uh layer of complexity, and it certainly doesn’t help that Ethereum’s layer 2 ecosystem has become somewhat saturated. To be blunt, this isn’t the best user experience, especially when users can stick to other layer 1 blockchains to achieve the same, if not better, results. Apologies for the interruption, for Ethereum, and that’s the growing competition from those aforementioned Ethereum killers. For anyone unaware, these are smart contract blockchains that threaten Ethereum’s dominance by effectively offering an alternative to Ethereum. Now, some of the leading Ethereum killers by market cap include Salana, BNB chain, Aptos, Avalanche, and Sooie, among many others. In fact, some of Ethereum’s oldest competitors come from blockchains created by some of its earliest co-creators, such as Gavin Woods Polka Dot and Charles Hoskinson’s Cardano. In any case, all of these projects are different from one another, but they all have something in common. They all have lower transaction fees than Ethereum and can process more transactions per second. This is why many of them have seen significant adoption with most rallying to new all-time highs this cycle, while ETH has been left in the dust. The crazy thing is that the difference between Ethereum and its competitors isn’t even close. Despite its overwhelming dominance over the non-Bitcoin part of the crypto market, Ethereum falls short against its rivals on numerous metrics. For context, Ethereum can theoretically process 119 transactions per second or TPS, although it usually handles around 15. There’s over 400,000 active Ethereum addresses at the time of shooting and over 1.1 million daily transactions. Ethereum has around $47 billion in total value locked or TVL. the majority of which as we mentioned earlier is on its layer 2s. On a more positive note, Ethereum still has the most active developers of any blockchain and by a wide margin. According to Electric Capital’s developer report, there are over 10,000 active developers working on EVM chains with more than 6,200 working on Ethereum itself. So over 16,000 in total. Meanwhile, Ethereum’s biggest competitor is arguably Salana, which can theoretically process up to 65,000 transactions per second with 1.3 second finality. Salana has 2.8 million daily active addresses and around $277 million daily transactions, granted that most of these transactions are bots. And Salana has a TVL of around $6.6 billion at the time of shooting. The Salana ecosystem also has the second highest developer count with around 6,400 in total. Notably, Salana became the first crypto to onboard more developers than Ethereum last year. And it should come as no surprise then that Soul has had no problems rallying to a new all-time high, reaching $294 in January of this year. Another example is Binance’s BNB chain, which can theoretically hit 2,222 transactions per second. Now, this target is likely a reference to the number two being lucky in some cultures, particularly in China. In any case, BNB Chain has around 1.2 million active addresses, handles around 6 million daily transactions, and has a TVL of around $5.3 billion. BNB Chain also has a relatively modest developer account of 688 according to Electric Capital, significantly fewer than either Salana or Ethereum. Meanwhile, Aptos has an impressive theoretical max TPS of around 160,000 with subsecond finality. Aptos has around 3 million active addresses, processes roughly 3.1 million daily transactions, and has a TVL of around $974 million at the time of shooting. Apttos is also home to around $723 developers. Then there’s Avalanche, which currently has a maximum TPS of just under 1,200, although the upcoming Virick upgrade will push Avalanche’s TPS all the way up to 100,000. Avalanche has around 104,000 active addresses, processes around 3.8 million daily transactions, and has a TVL of around $1.1 billion. Avalanche also has a fairly low developer count at just 406. And of course, there’s Sooie, which is so fast that not only is it a so-called Ethereum killer, but many see it as a possible Salana killer, too. Suie can theoretically process up to 297,000 TPS with sub-second finality. It has around 78 million addresses, processes around 14 million daily transactions, and has a TVL of $1.1 billion. Suie also has a developer count of 760, which is actually quite impressive considering that the Sooie blockchain is a relative newcomer, having launched in May 2023. With all that said, though, it’s worth repeating that while these alternative layer 1 chains have some serious competitive advantages over Ethereum in many regards, none have managed to overtake Ethereum in terms of adoption, developer activity, or even ecosystem size. Even with Ethereum’s relative weakness, there’s still a long way to go before it’s dethroned by any one of these rivals. Now, Ethereum may have more than its fair share of competition in the blockchain world, but another major challenge comes from the macro environment, specifically high interest rates. That’s because higher interest rates are reflected in government bonds, which are popular among institutional investors. At the time of shooting, the yield on US government bonds is 4.28%. 28%. Meanwhile, ETH staking offers a yield of just 3%. This means that institutional investors who love earning a consistent yield are much more inclined to stick with government bonds as a result. And what’s more is that this has been the case for quite some time now. That’s because there seems to have been an inflection point around mid 2023. Around this time, ETH staking yields dropped below 4% and have been gradually falling ever since. Meanwhile, US Treasury yields rose above 4% in July 2023. In retrospect, this seems to have been when Ethereum’s troubles began. And this lack of institutional interest is also reflected in the spot Ethereum ETFs, which have seen minimal interest relative to the spot Bitcoin ETFs that helped BTC rally to new all-time highs. The biggest reason for this is likely because Ethereum ETFs currently lack a staking mechanism, meaning there’s nothing that really differentiates them from the spot Bitcoin ETFs in the eyes of many investors. What doesn’t help is that running an Ethereum validator is also quite a complex process that involves specific hardware requirements and a whole bunch of complicated code. So this complexity combined with the lower yields than those available from US treasuries is likely a big part of why institutions would rather stick to US bonds. Quite frankly, unless institutional investors are also Ethereum bulls, or at least bullish on crypto as a whole, there’s no obvious reason why they would opt to invest heavily into an asset that offers a lower yield and is noticeably struggling to perform. The caveat is that Ethereum is still the most secure smart contract crypto by a wide margin and this makes it the ideal place to tokenize realworld assets and that is exactly what asset managers are keen to do. All in all then this paints a pretty bleak picture for Ethereum and ETH’s price as a result at least in the short term. However, we happen to believe that this could all change and ETH’s price could see a major recovery rally driven by multiple bullish factors. One major tailwind for Ethereum is the recent change in leadership at the SEC. Since Gary Gendler stepped down as chair, the SEC has taken a much more crypto-friendly approach towards the industry, almost doing a complete 180 on its previously hostile stance. This means that there’s now a much higher chance of staked Ethereum ETFs being approved. Now, these would potentially be a much more attractive product to investors since they would provide a simpler way to earn a yield on ETH. And not only that, but institutions could also become more comfortable with Ethereum’s tech thanks to Etherealize. For context, Etherealize launched in January this year with the mission to drive Ethereum’s institutional adoption on Wall Street. Etherealize will promote Ethereum to institutions by offering institutional-grade products that facilitate the tokenization of real world assets or RWAs. Now, these RWAs include tokenized bonds, commodities, real estate, and much more. Besides, naturally then, institutions are keen to integrate tokenized RWAs into their business models, and Etherealize will promote Ethereum as the go-to blockchain for this. Meanwhile, longtime Ethereum developer Danny Ryan has joined Etherealize as a co-founder, working alongside Vivc Raman to promote Ethereum to Wall Street. And it’s not just Etherealize. You may have seen that recently the Ethereum Foundation had a change in leadership which will likely benefit both the foundation itself and Etherealized. Stepping in to lead the foundation is Sao Wei Wang, one of its core researchers and Thomas Stansac, the CEO of Nevermind, one of Ethereum’s largest execution clients. Notably, both have backgrounds in Tradfi. Now, with the Ethereum Foundation under new leadership, Ethereum’s development could get an improved level of focus. However, it’s unlikely that Ethereum’s roadmap will shift away from those layer 2. As Vitalik himself has explained, abandoning layer 2s means abandoning the many benefits they provide. In his words, quote, “We should stay the course, continue to scale primarily through L2s, but make sure that L2s actually fulfill the promise that they were meant to fulfill.” And of course, there’s the upcoming Perra upgrade. Now, Petra will implement over 10 Ethereum improvement proposals or EIPs, mostly aimed at bringing more functionality to wallets and improving user experience. One proposal in particular, EIP7251, will increase the validator staking limit from 32 ETH to 48 ETH. Now, this will be immensely helpful to ETH whales like institutions and allow them to consolidate their positions across fewer validators, giving them a much more convenient way to earn a yield. That said, we should point out that Perra was recently delayed after Ethereum developers noticed a few technical issues. As such, Perra will be trial on the Hudi test net while these issues are patched. But all going well, the PERA upgrade could go live on the main net as early as the 25th of April. On the macro front, meanwhile, if interest rates begin to fall, then US treasuries will have a lower yield as a result. Assuming that ETH’s price begins to show some strength, this would make ETH staking much more appealing. As it happens, the Fed is widely expected to cut interest rates at least twice this year, with the first cut expected sometime over the summer. But back to the crypto side of things, as we mentioned earlier, many people believe that Ethereum’s biggest hurdle is its layer 2 ecosystem. However, what many don’t consider is that DeFi activity on these protocols continues to rise. So, while ETH isn’t necessarily being used for fees, it is being used more frequently as collateral and as a trading pair. In other words, the demand for ETH is still very much there, just perhaps not in the ways that you might expect. Ultimately though, this demand could translate to ETH’s price rising as these layer 2 gain adoption. So, while ETH’s chart may be painful to look at right now, especially against BTC, the bullish momentum building behind Ethereum suggests that better times may yet lie ahead. Let’s just hope that’s the case because, well, quite often it’s felt like they couldn’t get any worse, could they? Okay, folks. If you enjoyed today’s video, give it a boost by smashing those like and subscribe buttons. Don’t forget to turn on those notifications, too, so you don’t miss our next one. And if you want to learn more about Etherealize, you can check out our video on it right over here. And if you want to see how Ethereum fares against Salana, you can check out our comparison video right here. Okay, thank you all so much for watching and we’ll see you in the next one. This is Guy signing off.
