Ethereum: The Descent Into Hell

The split among ethereum developers has caused a resounding crash. Is this the beginning of the end?

Wall Street shuns ethereum

Short positions in the Futures market have increased by 40% in the past week and by 500% since November 2024!

Never before have investment funds from Wall Street been so pessimistic. This distrust manifested itself in a lightning drop of 37% at the beginning of the month.

BREAKING 🚨: Ethereum

Speculators have built the largest $ETH short position in history pic.twitter.com/GVpKfi0Aw7

— Barchart (@Barchart) February 9, 2025

This crash didn’t make headlines, but over $1 trillion has nonetheless vanished from the crypto market.

In the face of this decline, bitcoin’s dominance has increased even further. It now represents over 60% of the market. Up to 70% if we exclude stablecoins and memecoins.

ETH is currently trading 45% below its record high from November 2021. We are hovering around $2,600, down from $4,600 in 2021. The opposite is true for bitcoin, which is consolidating around $100,000, lurking just below its all-time high ($108,000).

The decline of ethereum against bitcoin is even more pronounced than against the dollar. ETH has collapsed by nearly 70% from December 2021 to today.

Ethereum $ETH trading at its lowest level relative to Bitcoin $BTC in more than 4 years 🚨 pic.twitter.com/V5qr0WcVVU

— Barchart (@Barchart) February 7, 2025

The question is: why are hedge funds betting on the decline? One explanation is that the supply of ETH is once again on the rise.

Just over 120 million ETH are in circulation. The uninterrupted growth since April 2024 isn’t huge, but it stands in stark contrast to the promise of “ultra sound money.” While the number of ETH was supposed to decrease following the transition to PoS, the opposite is happening instead.

Moreover, it turns out that institutional players are not showing up, not to mention the schism within the developer community which doesn’t help anything. A fork soon?

Ethereum vs Smart Money

“Institutional” investors have invested over $40 billion in Bitcoin ETFs. A jackpot now worth $113 billion given the appreciation of bitcoin. That’s nearly 6% of all BTC in circulation.

In contrast, Ethereum ETFs look pale. They are worth only $10 billion, or 3.5% of ETH. The volumes are meager.

Sophisticated investors know that monetary hegemony is a fight to the death. Twenty-seven U.S. states are preparing to accumulate bitcoins, and none of them want ETH…

Bitcoin already weighs six times more than ethereum, and it is hard to see how the trend could reverse. None of the nations planning to imitate the United States (Czech Republic, Hong Kong, Japan, Brazil, Poland, Russia, etc.) are talking about ethereum. The silence is deafening.

Some want to believe that the U.S. sovereign fund will accumulate some. However, it is enough to remember the words of Howard Lutnick (in charge of the sovereign fund) to be persuaded otherwise:

“What is the only asset that people can hold without anyone being able to confiscate it? Bitcoin. With the stablecoin tether, you can call Tether to freeze funds. With Ethereum, you can call Joe Lublin”…

“The only asset people could have held where no one could take it? Bitcoin.

With Tether, you can call Tether and they’ll freeze it.

With Ethereum, you can call Joe Lublin”

🤣

Cantor Fitzgerald CEO Howard Lutnick on CNBC today. pic.twitter.com/MRDrsFUf4g

— Daniel Sempere Pico (@BTCGandalf) December 13, 2023

Another reason why ethereum is on the decline is due to the revolt of developers against the recent purge within the Ethereum foundation.

Fork on the horizon?

Konstantin Lomashuk, founder of Lido and P2P.org, has created a “second foundation” for Ethereum.

At issue is the eviction of certain developers from the Ethereum Foundation, including veteran Eric Conner. He described the Ethereum Foundation as “a swamp of leftists and losers. We could cut 80% of the budget, and ethereum would still operate and progress.”

Another developer commented on X:

“You cannot deny that ethereum is losing entire segments of its base (users, developers). Think what you want, but the market is sending a strong signal that the current strategy is not right.”

The mistakes of the past are also resurfacing through @Beaniemaxi:

“The worst strategic decision of Ethereum was to switch from PoW to PoS due to climate change. […] Abandoning it made no economic sense.”

Discord reigns, and a recent statement from Vitalik Buterin points toward a centralized project. He stated on January 22:

“The person who decides the new leadership of the Ethereum foundation is me. One of the goals of the current reform is to give the foundation a ‘proper board’ [a real board of directors…].”

So far, Lomashuk’s intentions for this second foundation remain unclear. But the fact is that many big names have left the ship by selling their ETH in the aftermath.

We must look at the bright side of things. After five or six more foundations, Ethereum might finally claim to be decentralized…