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Zaheer Ebtikar, Chief Investment Officer (CIO) and founder of Split Capital—a hedge fund focused on investing in liquid tokens—has attributed Ethereum’s underperformance in recent months to the Ethereum Foundation’s poor strategy and structural changes to the flow. of crypto capital. In an analysis shared by X (formerly of Twitter), Ebtikar writes, “Besides the many (potential) bad decisions made by the base of ETH & co, there is another reason why ETH is trading like a dog in this cycle.”
Why Is Ethereum Price Lagging?
Ebtikar began by emphasizing the importance of understanding the flow of money in the crypto market. He saw three main sources of cash flow: retail investors participating directly through platforms like Coinbase, Binance, and Bybit; private capital from liquid and commercial funds; and institutional investors who invest directly through Exchange-Traded Funds (ETFs) and futures. However, he noted that retail investors are “very difficult to quantify” and “are not fully present in the market today,” thus excluding them from his analysis.
Focusing on private capital, Ebtikar highlighted that in 2021, this category was the largest capital of all, driven by the crypto euphoria that attracted more than 20 billion dollars in new revenue. “Fast forward to today, private equity is no longer the main source of capital as ETFs and other traditional vehicles have taken over the role of the new big buyer of crypto,” he said. He attributed the decline to a series of poor investments and reliance on previous cycles, which “left a bad taste in LPs’ mouths.”
These trading companies and liquid funds have realized that they cannot wait for another cycle and need to step up. They are starting to take more “target shots” with liquid plays, often with private deals involving locked tokens like Solana (SOL), Celestia (TIA), and Toncoin (TON). “These locked contracts also represent something very interesting for many firms – there is a world outside of Ethereum-based investments that is really growing and viable and has enough market growth related to ETH to justify underwriting the investment,” Ebtikar said. he explained.
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He mentioned that investors know that it will be very difficult to raise capital to invest in businesses and investments. Aside from retail returns, institutional products have been the only viable way to bid for ETH. Mindshare began to diverge as the three-year vintage mark of 2021 approached, and products like BlackRock’s flagship Bitcoin ETF (IBIT) gained legitimacy as a crypto benchmark. Private capital had to make a choice: “Drop their main portfolio in ETH and go 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 first consisted of pre-ETF traders between January and May 2024, who chose to exit ETH and switch to assets such as SOL. The second group, post-ETF traders from June to September 2024, realized that the ETF flowing into ETH was irrational and it would take a lot for the price of ETH to find support. “They understand that ETF flows have been unusual and it will take a lot for the ETH price to start supporting,” Ebtikar noted.
Turning his attention to institutional capital, Ebtikar noted that when Bitcoin ETFs like IBIT, FBTC, ARKB, and BITW entered the market, they exceeded expectations. “These products violate any of the intended investors and experts could understand their success,” he said. He pointed out that Bitcoin ETFs have been some of the most successful ETF products in history. “BTC has gone from being a dog in a regular portfolio to being the only piece of furniture for a new crypto currency and a record price again,” he said.
Despite the rise of Bitcoin, other markets have not kept up. Ebtikar questioned why this was the case, pointing out that crypto-native investors, traders, and private funds have long been reducing their holdings of Bitcoin. Instead, they “stuck with altcoins and Ethereum as the core of their portfolio.” As a result, when Bitcoin received its institutional bid, few in the crypto space benefited from the new wealth effect. “There are few in crypto who have benefited from the effect of newly created wealth,” he said.
Investors began reassessing their portfolios, struggling to decide their next move. Historically, cryptocurrencies will cycle from index assets like Bitcoin to Ethereum and then down the risk curve to altcoins. However, traders were speculating about possible flows to Ethereum and similar assets but were “very wrong.” The market began to diverge, and the dispersion between asset returns intensified. Professional crypto investors and traders moved down the risk, and the funds followed to generate returns.
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The asset they chose to reduce exposure to was Ethereum—the largest asset in their core portfolio. “Slowly but surely ETH started losing steam to SOL and the like, and a not-so-small percentage of this flow started to really go down to memecoins,” Ebtikar noted. “ETH has lost its moat to crypto-savvy investors, the only group of investors that have historically been interested in buying.”
Even with the introduction of ETH ETHs, the institutional capital did not pay much attention to Ethereum. Ebtikar described Ethereum’s predicament as suffering from “middle-child syndrome.” He further explained, “The asset is not available to institutional investors, the asset was lost to private crypto companies, and sales are not visible when bidding for anything of this size.” He stressed that Ethereum is too big for native capital to support while other index assets like SOL and large caps like TIA, TAO, and SUI are taking investors’ attention.
According to Ebtikar, the only way forward is to expand the universe of potential investors, which is possible only at the institutional level. “The best chance for ETH to make a material return (short for changes in the trajectory of the main protocol) is for institutional investors to take possession in the coming months,” he suggested. He acknowledged that while Ethereum faces significant challenges, “it’s the only asset with an ETF and probably will be for some time.” This unique position offers an opportunity for recovery.
Ebtikar talked about several things that could influence the future direction of Ethereum. He mentioned the possibility of Trump’s presidency, which could bring about changes in regulatory structures affecting cryptocurrency. He also hinted at potential changes in the Ethereum Foundation’s direction and core focus, suggesting that strategic changes may revive investor interest. Additionally, he emphasized the importance of marketing the ETH ETF through traditional asset managers to attract institutional capital.
“Considering the possibility of Trump’s presidency, the change in the direction of the Ethereum Foundation and the main focus, as well as the marketing of the ETH ETF by traditional asset managers, there are few exits from the father of smart contract platforms,” Ebtikar noted. He expressed cautious optimism, saying that not all hope is lost for Ethereum.
Looking ahead to 2025, Ebtikar believes it will be an important year for cryptocurrency and especially Ethereum. “2025 will be a very interesting year for crypto and especially for Ethereum as the major damage from 2024 may not be visible or deep,” he concluded. “Time will tell.”
At press time, ETH traded at $2,534.
The featured image was created with DALL.E, a chart from TradingView.com
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