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Zaheer Ebtikar, the Chief Funding Officer (CIO) and founding father of Break up Capital—a hedge fund specializing in liquid token investments—has attributed the Ethereum underperformance during the last months to strategic missteps by the Ethereum Basis and structural shifts in crypto capital flows. In an evaluation shared through X (previously Twitter), Ebtikar writes, “Independent of the myriad of (probable) bad decisions that the ETH foundation & co have made there’s another structural reason why ETH has traded like a dog this cycle.”
Why Is The Ethereum Value Lagging Behind?
Ebtikar started by emphasizing the significance of understanding capital flows inside the crypto market. He recognized three major sources of capital stream: retail buyers who interact instantly via platforms like Coinbase, Binance, and Bybit; non-public capital from liquid and enterprise funds; and institutional buyers who make investments instantly via Trade-Traded Funds (ETFs) and futures. Nevertheless, he famous that retail buyers are “hardest to quantify” and are “not fully present in the market today,” thus excluding them from his evaluation.
Specializing in non-public capital, Ebtikar highlighted that in 2021, this section was the biggest capital base, pushed by crypto euphoria that attracted greater than $20 billion in web new inflows. “Fast forward to today, private capital is no longer the heavy hitter capital base as ETFs and other traditional vehicles have taken the role of the largest net new buyer of crypto,” he acknowledged. He attributed this decline to a sequence of poor enterprise investments and overhang from prior cycles, which have “left a bad taste in the mouths of LPs.”
These enterprise corporations and liquid funds acknowledged that they couldn’t wait out one other cycle and wanted to be extra proactive. They started taking extra “shots on target” for liquid performs, usually via non-public offers involving locked tokens equivalent to Solana (SOL), Celestia (TIA), and Toncoin (TON). “These locked deals also represented something more interesting for a lot of firms—there’s a world outside of Ethereum-based investing that is actually growing and usable and has enough market cap growth relative to ETH that could justify the underwriting of the investment,” Ebtikar defined.
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He famous that buyers have been conscious it might be more and more troublesome to lift funds for enterprise and liquid investments. With out the return of retail capital, institutional merchandise grew to become the one viable avenue for a bid for ETH. Mindshare started fragmenting because the three-year mark of the 2021 classic approached, and merchandise like BlackRock’s spot Bitcoin ETF (IBIT) gained legitimacy because the de facto benchmark for crypto. Non-public capital had to select: “Abandon their core portfolio hold in ETH and move down the risk curve or hold your breath for traditional players to start bailing you out.”
This led to the formation of two camps. The primary consisted of pre-ETF ETH sellers between January and Could 2024, who opted out of ETH and swapped to property like SOL. The second group, post-ETF ETH sellers from June to September 2024, realized that ETF flows into ETH have been lackluster and that it might take way more for ETH’s worth to achieve help. “They understood that the ETF flows were lackluster and it would take a lot more for ETH price to begin being supportive,” Ebtikar famous.
Turning his consideration to institutional capital, Ebtikar noticed that when spot Bitcoin ETFs like IBIT, FBTC, ARKB, and BITW entered the market, they exceeded expectations. “These products broke any realistic target investors and experts could’ve fathomed with their success,” he acknowledged. He emphasised that Bitcoin ETFs have grow to be a few of the most profitable ETF merchandise in historical past. “BTC went from being a dog in the average portfolio to now the only funnel for net new capital in crypto and at a record rate too,” he mentioned.
Regardless of Bitcoin’s surge, the remainder of the market didn’t sustain. Ebtikar questioned why this was the case, stating that crypto-native buyers, retail, and personal capital had lengthy since diminished their Bitcoin holdings. As a substitute, they have been “stuck in altcoins and Ethereum as the core of their portfolio.” Consequently, when Bitcoin acquired its institutional bid, few within the crypto house benefited from the brand new wealth impact. “Few in crypto were beneficiaries of the newly made wealth effect,” he remarked.
Traders started to reassess their portfolios, struggling to resolve their subsequent strikes. Traditionally, crypto capital would cycle from index property like Bitcoin to Ethereum after which down the danger curve to altcoins. Nevertheless, merchants speculated on potential flows into Ethereum and comparable property however have been “broadly wrong.” The market began to diverge, and the dispersion between asset returns intensified. Skilled crypto buyers and merchants moved aggressively down the danger curve, and funds adopted go well with to generate returns.
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The asset they selected to scale back publicity to was Ethereum—the biggest asset of their core portfolios. “Slowly but surely ETH started losing steam to SOL and similar, and a non-trivial percentage of this flow started really moving downstream to memecoins,” Ebtikar noticed. “ETH lost its moat in crypto-savvy investors, the only group of investors who were historically interested in buying.”
Even with the introduction of spot ETH ETFs, institutional capital paid little consideration to Ethereum. Ebtikar described Ethereum’s predicament as affected by “middle-child syndrome.” He elaborated, “The asset is not in vogue with institutional investors, the asset lost favor in crypto private capital circles, and retail is nowhere to be seen bidding anything at this size.” He emphasised that Ethereum is simply too giant for native capital to help whereas different index property like SOL and enormous caps like TIA, TAO, and SUI are capturing investor consideration.
In accordance with Ebtikar, the one approach ahead is to develop the universe of doubtless buyers, which might solely occur on the institutional degree. “ETH’s best odds of making a material comeback (short of changes to the core protocol’s trajectory) is to have institutional investors pick up the asset in the coming months,” he urged. He acknowledged that whereas Ethereum faces important challenges, it’s “the only other asset with an ETF and likely will be for some time.” This distinctive place affords a possible avenue for restoration.
Ebtikar talked about a number of components that might affect Ethereum’s future trajectory. He cited the potential for a Trump presidency, which might convey adjustments to regulatory frameworks affecting cryptocurrency. He additionally pointed to potential shifts within the Ethereum Basis’s path and core focus, suggesting that strategic adjustments might reinvigorate investor curiosity. Moreover, he highlighted the significance of selling the ETH ETF by conventional asset managers to draw institutional capital.
“Considering the possibility of a Trump Presidency, change at the Ethereum Foundation’s direction and core focus, and marketing of the ETH ETF by traditional asset managers, there are quite a few outs for the father of smart contracting platforms,” Ebtikar remarked. He expressed cautious optimism, stating that not all hope is misplaced for Ethereum.
Waiting for 2025, Ebtikar believes it is going to be a vital 12 months for cryptocurrency and particularly for Ethereum. “2025 will very much be an interesting year for crypto and especially for Ethereum as so much of the damage from 2024 can be unwound or further deepened,” he concluded. “Time will tell.”
At press time, ETH traded at $2,534.
Featured picture created with DALL.E, chart from TradingView.com
