Ethereum Narrative Crisis: Why Has Seven Years of Ecosystem Building Faced Market Cold Shoulder?

Original Title: ETH needs a new narrative

Original Author: Richard Chen

Original Translation: DeepTech TechFlow

Last week, the price of Ethereum (ETH) fell to the level of its 2017 initial coin offering (ICO). Back then, Ethereum was just a whitepaper and a token, and compared to today's multitude of real-world applications, the market seems indifferent to the 7.5-year progress of the Ethereum developer ecosystem.

The bigger issue is that ETH needs a new narrative, a clear reason to attract people to buy the token. Let's analyze the common narratives of ETH and discuss why they are no longer effective.

1. "ETH is Bitcoin (BTC)'s leveraged beta."

In past bull market cycles, this statement did hold true, with altcoins often outperforming BTC, and blue-chip altcoins being leveraged beta. Whenever BTC performed well, investors would increase their risk exposure, thus getting better returns in altcoins.

This time is different. In January 2024, the launch of Bitcoin ETF brought a new paradigm shift. Nearly $100 billion in funds flowed into Bitcoin ETFs, which now collectively hold 5.7% of the BTC supply. In contrast, Ethereum ETFs attracted only $5 billion in fund inflows. Unlike past cycles, a large influx of funds into the cryptocurrency market, especially from large institutions, is now only flowing into BTC and not spreading to other parts of the market. While BTC will always have a natural demand for new funds looking to enter the cryptocurrency space, it is unclear if other assets have a similar demand.

Bitcoin (BTC) is on a separate tier and diverges from the rest of the market.

The new fund inflows not entering the second layer of altcoins means we are facing a zero-sum game of speculative capital that rotates among different "casinos." This has been evident in price movements over the months post-election, with speculative capital moving from Solana's AI agent meme coin to Hyperliquid, then back to $TRUMP and $MELANIA. Without economic growth, competition, and the attention-capturing zero-sum tribalism of the crypto space accelerated this rotation.

Another second-order effect of funds not flowing into altcoins is that it harms the venture capital market. For Token Generation Events (TGEs), the best-case scenario is for the financing ceiling of infrastructure projects to be in the tens of billions of dollars, with the total available market (TAM) for other project categories calculated in reverse. Due to an oversupply of capital relative to founder talent, valuations in private funding rounds have not decreased. Therefore, returns on crypto venture capital are being compressed.

2. "ETH is Ultrasound Money."

This is no longer true. In April 2024, the ETH supply started to reverse and increase again. In February 2025, ETH became inflationary since the merge. Therefore, the argument that ETH is a harder money than BTC is no longer valid.

The argument for ultrasound money is also somewhat nuanced. Those new to the crypto space will embrace the scarcity narrative of "BTC as digital gold" without delving into the technical details of EIP-1559 and which of BTC or ETH is more deflationary.

Source: ultrasound.money

3. "ETH is Digital Oil."

The issue with this framework is that ETH would trade like a commodity, exhibiting sideways and range-bound movement. The value of commodities is based on market supply and demand dynamics, not as a growth asset held for the long term. To illustrate this point, there are two charts below comparing the performance of oil versus the S&P 500 Index over the past decade.

USO

SPY

Over the past decade, oil trading has mostly been range-bound, with only two outlier events: 1) the early 2015 release of U.S. oil supply due to advancements in hydraulic fracturing technology; 2) the COVID crash in early 2020.

Using the "digital oil" framework, if ETH enters the market due to inflation again but lacks marginal buying demand, the price will decline.

4. "ETH is a global settlement layer."

Ethereum's long-term scalability roadmap faces an inherent contradiction between two goals: 1) scalability will be pushed to Layer 2 (L2), with Ethereum becoming a settlement layer; 2) L2's economic activity will accrue value to ETH. When EIP-4844 significantly reduces the cost of publishing transaction data to Layer 1 (L1), this improves L2 scalability but also reduces Ethereum's revenue.

The bigger issue is that when L2 introduces their own tokens, they become somewhat "parasitic" to ETH. L2 has a strong economic incentive to accumulate value in their own tokens rather than ETH. Therefore, aside from technical differences in the consensus mechanism, L2 behaves almost like a competitive L1.

This has led to the decoupling of the EVM (Ethereum Virtual Machine) from ETH value accrual. Ethereum's greatest historical defense has been its development tooling ecosystem around the EVM — debuggers, fuzzing tools, template contracts, etc. — all built over years of open-source development. For new developers, building on the EVM is much easier than building on a non-EVM chain without such a robust tooling infrastructure. With the decoupling of the EVM and ETH, EVM adoption can continue to grow as new L2 solutions like MegaETH and new L1s like Berachain and Monad leverage the EVM ecosystem, but value accrual goes back to their native tokens rather than ETH.

5. "ETH Has the Most Economic Activity on Any Chain."

A future scenario could see stablecoin total value locked (TVL) at an all-time high, decentralized exchange (DEX) trading volume at an all-time high, and other economic activity metrics on Ethereum at all-time highs, yet ETH price still not at an all-time high due to price-to-earnings (P/E) multiple compression. In this case, ETH's trading would resemble more that of tech stocks like Tesla (TSLA, 97x forward P/E) or NVIDIA (NVDA, 24x forward P/E).

With the current annualized profit, ETH would need a 300x P/E multiple to reach an all-time high again without any currency premium. Therefore, there is still significant downside risk from P/E compression.

What's next for ETH?

Perhaps ETH will rise due to mean reversion or continue to perform poorly for the reasons mentioned above.

But before that, ETH needs a new narrative.

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