In the continuous fall, ETH needs a new narrative.

Author: Richard Chen

Compiled by: Deep Tide TechFlow

Last week, the price of Ethereum (ETH) fell back to the level it had during its initial coin offering (ICO) in 2017. At that time, Ethereum was just a white paper and a token, and compared to today, when it has numerous practical applications, the market seems indifferent to the progress of the Ethereum developer ecosystem over the past seven and a half years.

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 explore why they are no longer effective.

1. "ETH is the leveraged beta of Bitcoin (BTC)."

During the past bull market cycles, this statement has indeed been true; altcoins typically outperformed BTC, and blue-chip altcoins served as leveraged beta. Whenever BTC performs well, investors increase their risk exposure, thereby achieving better returns in altcoins.

This situation is different. In January 2024, the launch of Bitcoin ETFs brought about a new paradigm shift. Nearly $100 billion flowed into Bitcoin ETFs, which now collectively hold 5.7% of the BTC supply. In contrast, Ethereum ETFs attracted only $5 billion in inflows. Unlike past cycles, a significant amount of capital is flowing into the cryptocurrency market, especially from large institutions, and this is now only entering BTC, without spreading to other parts of the market. BTC will always have a natural demand from new funds looking to access cryptocurrencies, but whether there is such demand for other assets remains unclear.

Bitcoin (BTC) is in an independent tier and is differentiated from other parts of the market.

The second-order effect of new capital inflows not entering altcoins is that we face a zero-sum game speculative pool of funds that rotates between different "casinos." This is evident in the price movements in the months following the election, where speculative funds shifted from Solana's AI agent meme coins to Hyperliquid, and then back to $TRUMP and $MELANIA. Without economic growth, the competitive zero-sum attention of crypto tribalism has accelerated this rotation. Another second-order effect of capital inflows not entering altcoins is that it hurts the venture capital market. The best-case scenario for Token Generation Events (TGE) is that the financing cap for infrastructure projects reaches billions of dollars, while the total addressable market (TAM) for other project categories is smaller when back-calculated. Therefore, the valuations in private rounds have not decreased due to the oversupply of capital relative to founding talent. As a result, the returns on crypto venture capital are being compressed.

2. "ETH is an ultrasonic currency."

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

The argument for ultrasonic currency is somewhat moderate. Newcomers to the crypto space may accept the narrative of "BTC as digital gold" due to its scarcity, without understanding the technical details of EIP-1559 and which is more deflationary, BTC or ETH.

Source: ultrasound.money

3. "ETH is digital oil."

The problem with this framework is that ETH will trade like a commodity, exhibiting sideways and range-bound fluctuations. The value of commodities is based on market supply and demand, rather than as a growth asset for long-term buy-and-hold. To illustrate this, there are two charts below comparing the performance of oil and the S&P 500 index over the past decade.

USO

SPY

In the past decade, oil trading has mostly fluctuated within a range, with only two exceptions: 1) At the beginning of 2015, U.S. oil supply was released due to advancements in hydraulic fracturing technology; 2) The COVID crash at the beginning of 2020.

Using the "Digital Oil" framework, if ETH enters the market again due to inflation but has no marginal buying demand, the price will fall.

4. "ETH is the global settlement layer."

The long-term scalability roadmap of Ethereum presents an inherent contradiction between two goals: 1) scalability will be pushed to Layer 2 (L2), making Ethereum a settlement layer; 2) the economic activity on L2 will accumulate value for ETH. When EIP-4844 significantly reduces the cost of publishing transaction data to Layer 1 (L1), it enhances the scalability of L2 but also decreases Ethereum's revenue.

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

This has led to a decoupling of EVM (Ethereum Virtual Machine) from the value accumulation of ETH. The greatest defense of Ethereum historically lies in its development tool ecosystem surrounding the EVM—debuggers, fuzz testing tools, boilerplate contracts, etc.—all of which have been built over years of open-source development. For new developers, building on the EVM is much easier than building on non-EVM chains that do not have such a robust development tool infrastructure. As the EVM and ETH decouple, EVM adoption can continue to grow, as new L2s like MegaETH and new L1s like Berachain and Monad leverage the EVM ecosystem, but value accumulation returns to their native tokens rather than ETH.

5. "ETH has the most economic activity of any chain."

In the future, it is possible that a situation may arise where the total value locked (TVL) in stablecoins reaches an all-time high, the trading volume on decentralized exchanges (DEX) hits an all-time high, and other economic activity indicators on Ethereum reach an all-time high, yet the price of ETH does not reach an all-time high, due to the contraction of the price-to-earnings (P/E) ratio. In this case, trading ETH would be more similar to trading tech stocks like Tesla (TSLA, 97 times expected P/E) or Nvidia (NVDA, 24 times expected P/E).

With the current annualized profit, ETH needs a price-to-earnings ratio of 300 times to reach a historical high again without any currency premium. Therefore, there is still significant downside risk in the price-to-earnings ratio compression.

What's next for ETH?

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

But before that, ETH needs a new narrative.