Last week ETH retraced back to 2017 ICO levels. This was back when Ethereum was just whitepapers and tokens, compared to many apps with real usage today. The market doesn’t seem to care about 7½ years of progress with Ethereum’s developer ecosystem.

The bigger issue is that ETH needs a new narrative, a clear story for why people should buy the coin. Let’s break down the common narratives for ETH and see why they no longer hold.

1. “ETH is leveraged beta on BTC.”

This has been true in past bull market cycles, that altcoins outperform BTC and blue chip altcoins are leveraged beta. Whenever BTC performs well, investors go risk on and get better upside in altcoins.

This time is different. The Bitcoin ETF launch in January 2024 created a new paradigm shift. Almost $100B of inflows went into Bitcoin ETFs, which now collectively hold 5.7% of the BTC supply. Compare that to only $5B of inflows into Ethereum ETFs. Unlike in past cycles, large inflows into crypto, namely from big institutions, now just go into BTC and don’t trickle down anymore to the rest of the market. BTC will always have natural demand from new money that wants exposure to crypto, but that is unclear for other assets.

BTC is in a tier of its own and diverging from the rest of the market.

The second-order effect of new inflows not going into altcoins is that we’re left with a hot pool of zero-sum degen money that’s rotating around from one casino to another. This was very apparent in price action in the months post-election, when degen money rotated from Solana AI agent memecoins to Hyperliquid back to $TRUMP and $MELANIA. Without economic growth, crypto tribalism accelerates from competing for zero-sum attention in the casino.¹

2. “ETH is ultrasound money.”

This is no longer true. In April 2024, the ETH supply reversed course and started increasing again. In February 2025, ETH became inflationary since The Merge. So the argument that ETH is harder money than BTC doesn’t hold anymore.

The ultrasound money thesis is also a bit midcurve. Newcomers to crypto will buy the “BTC is digital gold” scarcity narrative without knowing about EIP-1559 and the technical details of whether BTC or ETH is more deflationary.

Source: ultrasound.money

3. “ETH is digital oil.”

The issue with this framework is that ETH then trades like a commodity, which is sideways and rangebound. Commodities are valued based on market supply and demand, rather than as a long-term buy and hold growth asset. To illustrate, here are two charts comparing oil to S&P 500 over the past decade.

USO

SPY

Oil has been trading rangebound over the past decade with the exception of two events: 1) advances in fracking technology unlocking new US oil supply in early 2015 and 2) COVID crash in early 2020.

Using the “digital oil” framework, if new supply of ETH hits the market because it’s inflationary again but there isn’t marginal buying demand, the price will drop.

4. “ETH is the global settlement layer.”

Ethereum’s long-term scaling roadmap has an inherent contradiction between two goals, that 1) scaling will be pushed out to L2s and Ethereum will be the settlement layer, and that 2) L2 economic activity will accrue value back to ETH. When EIP-4844 blobs decreased the cost of posting transaction data to L1 by an order of magnitude, it made L2s more scalable but also reduced the revenue to Ethereum.

The bigger issue though is when L2s launch their own tokens they become parasitic to ETH. L2s have a strong financial incentive for value to accrue to their own tokens not to ETH. Thus L2s behave almost like competing L1s aside from technical differences around consensus mechanisms.²

What happens then is a decoupling of EVM adoption and ETH value accrual. Historically Ethereum’s biggest defensibility is its ecosystem of developer tooling around EVM – debuggers, fuzzers, boilerplate contracts, etc. – that’s been built up over many years of open-source development. It is far easier for a new developer to build on EVM than another non-EVM chain that doesn’t have as robust developer tooling infrastructure. With the decoupling of EVM and ETH, EVM adoption can continue to grow as new L2s like MegaETH and new L1s like Berachain and Monad piggyback off of the EVM ecosystem, but value accrual goes back to their native tokens not to ETH.

5. “ETH has the most economic activity of any chain.”

There could very likely be a future scenario where stablecoin TVL hits all-time high, DEX volume hits all-time high, and other metrics of economic activity hit all-time highs on Ethereum, yet ETH price still doesn’t hit all-time high because the P/E multiple compresses. In this scenario, ETH trades more akin to tech stocks like TSLA (97x forward P/E) or NVDA (24x forward P/E).

At current annualized profits, ETH would need to have a 300x P/E multiple in order to hit all-time high again without any monetary premium. So there is still a lot of downside risk of P/E compression.

What happens to ETH from here? Maybe ETH pumps from a mean reversion or ETH continues to underperform for the reasons listed above. Until then, ETH needs a new narrative.

1. Another second-order effect of inflows not going into altcoins is it hurts the venture market. The best-case scenario for TGEs is capped at single digit billions for infrastructure projects, and working backwards there’s smaller TAM for other project categories. Private round valuations aren’t coming down either, as there’s still an oversupply of capital relative to the founder talent in this space. Thus, returns for crypto VCs are compressing.
2. Based rollups are an attempt for L2s to accrue value back to ETH, but the mistake was not including them as part of the original design for L2s. Once L2s are earning money from their own sequencers there’s little incentive to give away the sequencer.

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