It is rare that this column starts with a chart of Ethereum. On first glance, now seems to be an even stranger time to do so. While BTC has seen a >2x run-up and projects like Solana grew multiples, ETH stood out as the so-called ‘most hated coin’ of the cycle so far. However, it seems that the time for this narrative to change is approaching fast.
Four main drivers stand out. First and foremost, the ETH ETF deadline for the SEC is coming. Although the SEC delayed its decision on BlackRock’s application, the US Financial Markets regulator will need to make its decision by late May. Given that it took BTC years until an ETF was finally in place, an approval is not guaranteed. But the speculation alone should guarantee excitement.
On a more fundamental, long-term level though, ETH has been a deflationary asset since the merge and transition to Proof of Stake. More ETH gets burned during transactions than is created through issuance. Ethereum is also removed from circulating supply in other ways: As the ‘restaking’ narrative is heating up, over $4 billion worth of ETH has been locked away in protocols such as Eigenlayer to earn extra yield in return for extending Ethereum security to other chains. More ETH gets locked up in Bridges, Layer 2s, as collateral and so on. A growing demand for ETH is facing an increasing short-fall of supply. Needless to say that as a protocol, Ethereum is highly profitable. Various projects, traders and general network participants who pay for ‘block space’ drive $2.4 billion of annual profit. In an industry not known for strong fundamentals, these numbers are hard to argue with.
What does this mean for Ethereum’s short and medium term outlook? As traders we are not in the predictions game, we are in the probabilities game. Unexpected events could come in the face of wider market Macro risk or a sudden decision by the SEC to declare ETH a security. But barring any unforeseen surprise, the outlook is strong.