Zaheer Ebtikar, the Chief Investment Officer (CIO) and founding father of Split Capital—a hedge fund specializing in liquid token investments—has attributed the Ethereum underperformance over the past months to strategic missteps by the Ethereum Foundation 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 Price Lagging Behind?
Ebtikar started by emphasizing the significance of understanding capital flows inside the crypto market. He recognized three main sources of capital movement: retail traders who have interaction instantly by way of platforms like Coinbase, Binance, and Bybit; personal capital from liquid and enterprise funds; and institutional traders who make investments instantly by way of Exchange-Traded Funds (ETFs) and futures. However, he famous that retail traders are “hardest to quantify” and are “not fully present in the market today,” thus excluding them from his evaluation.
Focusing on personal capital, Ebtikar highlighted that in 2021, this phase 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 by way of personal offers involving locked tokens resembling 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 traders had been conscious it could be more and more tough to lift funds for enterprise and liquid investments. Without 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. Private capital had to choose: “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 first consisted of pre-ETF ETH sellers between January and May 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 had been lackluster and that it could take far 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 turn out to be a number 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 stated.
Despite Bitcoin’s surge, the remainder of the market didn’t sustain. Ebtikar questioned why this was the case, mentioning that crypto-native traders, retail, and personal capital had lengthy since diminished their Bitcoin holdings. Instead, they had been “stuck in altcoins and Ethereum as the core of their portfolio.” Consequently, when Bitcoin obtained 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.
Investors started to reassess their portfolios, struggling to determine their subsequent strikes. Historically, crypto capital would cycle from index property like Bitcoin to Ethereum after which down the danger curve to altcoins. However, merchants speculated on potential flows into Ethereum and related property however had been “broadly wrong.” The market began to diverge, and the dispersion between asset returns intensified. Professional crypto traders 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 cut 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 huge caps like TIA, TAO, and SUI are capturing investor consideration.
According to Ebtikar, the one means ahead is to develop the universe of doubtless traders, which may solely occur on the institutional stage. “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 vital challenges, it’s “the only other asset with an ETF and likely will be for some time.” This distinctive place presents a possible avenue for restoration.
Ebtikar talked about a number of elements that might affect Ethereum’s future trajectory. He cited the potential for a Trump presidency, which might deliver adjustments to regulatory frameworks affecting cryptocurrency. He additionally pointed to potential shifts within the Ethereum Foundation’s path and core focus, suggesting that strategic adjustments might reinvigorate investor curiosity. Additionally, he highlighted the significance of promoting 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.
Looking forward to 2025, Ebtikar believes will probably 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
