Written by: Sunny, Messari Research
Translated by: Alex Liu, Foresight News
In recent years, traditional finance (TradFi) has gradually lost the source of its growth narrative. Artificial intelligence has been over-allocated, and software companies are no longer as full of imaginative potential as they were in the 2000s and 2010s.
For those growth investors who raise funds to bet on disruptive innovation narratives, the reality is: AI asset valuations are generally inflated, and other 'growth stories' are difficult to tell anew. Once-dominant FAANG stocks are now gradually transforming into moderate 'compound stocks' pursuing profit maximization. The current median price-to-sales ratio (enterprise value/sales) of software companies has fallen below 2 times.
Thus, cryptocurrencies are back in the spotlight.
Bitcoin breaks historical highs; the President of the United States 'strongly advocates' for crypto assets at a press conference; a series of regulatory tailwinds have brought this asset class back into the mainstream for the first time since 2021.
Unlike the last cycle's NFTs and Dogecoin, the protagonists this round are digital gold, stablecoins, 'tokenization', and payment system reform. Stripe and Robinhood claim that the next stage's focus is on crypto business; Coinbase successfully entered the S&P 500 index; Circle showcased a sufficiently attractive growth narrative to capital markets, allowing investors to overlook valuation multiples and focus on potential stories.
But what does all this have to do with ETH?
For crypto natives, the battlefield of smart contract platforms has long been divided: Solana, Hyperliquid, and numerous high-performance new chains and Rollup platforms pose a real threat to Ethereum's dominance.
We know that Ethereum has not truly solved the value capture problem, and we also know it is facing structural challenges.
But Wall Street doesn't understand this. In fact, most Wall Street practitioners know almost nothing about Solana. In terms of prominence, older coins like XRP, LTC, LINK, ADA, and DOGE might be more present in their minds than SOL. After all, these people have almost completely faded out of the crypto market in recent years.
What they know is that ETH is 'lindy' — it has stood the test of time; it has survived multiple market volatility tests; for a long time, it has been the main 'Beta' asset outside of Bitcoin. What they see is that ETH is currently one of the only two crypto assets with a spot ETF. What they prefer is a relatively cheap valuation asset that is about to experience a catalyst, a 'value pit'.
In their eyes, Coinbase, Kraken, and Robinhood have all chosen to build products on Ethereum. They can quickly find out that Ethereum has the largest on-chain stablecoin pool. They start doing 'moon calculations' — and then realize Bitcoin has set a new high, while Ethereum is still more than 30% away from its 2021 peak.
For them, this 'relative undervaluation' is not a risk, but an opportunity. They prefer to buy an asset that is still at a low level and has a clear target price, rather than chase a coin that is 'too late' on the chart.
And they may have already entered the market. Now, compliance restrictions on institutional investment are no longer a major issue. As long as there are enough incentives, any fund can strive to allocate crypto assets. Despite crypto Twitter (CT) swearing 'never to touch ETH again' over the past year, based on this year's market performance, ETH has outperformed other mainstream assets for more than a month.
As of now, SOL/ETH has fallen nearly 9% this year; after hitting bottom in May, Ethereum's market cap share has begun the longest rally since mid-2023.
So the question arises: If the entire crypto community believes ETH is a 'cursed coin', how can it still outperform?
The answer is: it is attracting new buyers.
Since March, the net inflow data for Ethereum spot ETFs has been in a 'up only' mode.
(Data source: Coinglass)
Ethereum 'accumulators', mimicking the MicroStrategy model, are seeing their stock prices soar, injecting structural leverage into the market.
At the same time, some crypto native users may realize their allocation is insufficient and begin to transfer funds from BTC and SOL, which have already surged in the past two years.
It needs to be clarified that we are not saying the Ethereum ecosystem has solved its problems. Rather, the asset ETH is beginning to gradually 'decouple' from the Ethereum network.
External buyers are reshaping the market narrative for ETH, shifting from 'decline is certain' to a paradigm of 'valuation reassessment'. Eventually, shorts will be squeezed out, and native capital may also join the chase, leading us to a market frenzy centered around ETH, potentially culminating in a peak at some point.
If this happens, ETH's historical high may not be far away.
