(Kitco News) – In the world of cryptocurrencies, Bitcoin (BTC) receives the lion’s share of attention from investment analysts and news media as it represents more than half of the total crypto market cap, but according to one Chief Investment Officer, Ethereum (ETH) is one contrarian bet that shouldn’t be ignored.
“It’s cool to hate Ethereum right now. I bet this ends up looking silly,” wrote Matt Hougan, CIO at Bitwise. “No one likes Ethereum right now.”
To highlight the lack of love being shown to the second-ranked crypto by market cap, Hougan noted that “The ETH/BTC ratio – a comparison of the price of Ethereum versus the price of Bitcoin – recently hit its lowest level in three years.”
ETH/BTC Chart by TradingView
“On a year-to-date basis Ethereum is flat while Bitcoin is up 38%, and Ethereum’s top competitor, Solana, is up 31%,” he added. “The vibes in the community are tough.”
According to Hougan, there are a variety of reasons that Ethereum finds itself in the “doldrums” – including election risk, rising competiton from Solana and others, challenging tokenomics, and mixed exchange-traded fund (ETF) results – but it would be wise not to fade the top smart contract platform as it leads the running to become the Microsoft of blockchains.
“Ethereum faces material risk in the November election,” he said. “While Bitcoin has largely passed regulatory scrutiny – even SEC 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 towards crypto, Ethereum could face challenges.”
Regarding the layer-one (L1) competitive landscape, Hougan noted that “Ethereum faces rising challenges from newer blockchains that offer higher throughput and lower costs.”
“Solana is the leading example of this, but others – both existing and soon-to-launch – are starting to crowd the space,” he noted. “It’s somewhat cool in crypto circles to be bullish on Solana and other new chains and bearish on Ethereum because of its older, costlier tech.”
When it comes to Ether’s tokenomics, Hougan highlighted that “Over the past few years, the Ethereum community has made the decision to focus on growing transaction volume on ‘Layer 2’ networks that surround Ethereum rather than on the core (or ‘Layer 1’) Ethereum blockchain itself.”
“This has been wildly successful – transaction activity on Layer 2s like Base, Arbitrum, and Optimism is soaring,” he said. “But the rise of Layer 2s has shifted so much volume away from Ethereum that its revenues are down to a four-year low. Many wonder if Ethereum has shot itself in the foot by scaling away from the foundational Layer 1 blockchain.”
And while the launch of spot Bitcoin ETFs was met with record-breaking demand, the same has not been true for the recently launched Ether ETFs, he noted. “While newly launched ETFs have gathered billions, they’ve been more than offset by $2.7 billion in outflows from the Grayscale Ethereum Trust (ETHE).”
“These are good reasons to be concerned,” Hougan commented. “But I think they miss the broader point.”
“From 30,000 feet, it's true that blockchains like Ethereum and Solana are both trying to create a ‘public computer’ – global databases that other people can use for building applications,” he explained. “But when you look at which applications are seeing breakthrough success, they’re almost all dominated by Ethereum.”
Hougan noted that “More than half of all stablecoins are issued on Ethereum; Over 60% of all DeFi assets are locked on Ethereum;” and Polymarket, “the breakthrough prediction market, ultimately settles on Ethereum.”
“There are many more examples,” he said. “When BlackRock wanted to build a tokenized money market fund this year, it built on Ethereum; that fund now has more than $500 million in assets under management. When Nike launched a Web 3 gear platform called .Swoosh, it launched on Ethereum. When the next large traditional company wants to do a blockchain product, I bet they’ll choose Ethereum too.”
Other notable strengths of the ecosystem include the fact that “Ethereum has the most active developers, the most active users, and a market cap that is 5x bigger than its closest competitor,” Hougan continued. “It’s the only programmable blockchain that has a modicum of regulatory support in the U.S., with a booming regulated futures market and a multi-billion-dollar ETF market.”
For these reasons, Hougan said that Ethereum is “like the Microsoft of blockchains.”
“Everyone wants to talk about Google and Slack and Zoom, and with good reason: Each of them has brought game-changing technology to the market,” he noted. “But Microsoft is still larger than all of them put together.”
He said the point of highlighting this is not to express bearishness on Solana or other chains, but to highlight that Ethereum hasn’t been getting the attention it deserves from the investing world for its accomplishments.
“They are having significant impact, and there is a lot to be excited about,” he said, referring to the growing list of reputable L1s. “But I think people are too quick to look past Ethereum and the real-world success we’re already seeing in its ecosystem.”
“From my seat, none of Ethereum’s challenges seem existential, and its opportunities are brimming. I suspect the market may reevaluate Ethereum as we get closer to the November elections and any regulatory clarity that emerges,” Hougan concluded. “For now, it looks like a potential contrarian bet through the end of the year.”
