Bitwise analyst sees Ethereum's struggles as a long-term opportunity

ethereum is facing some of its toughest challenges yet as market sentiment is turning negative. The cryptocurrency’s performance has lagged, its regulatory outlook remains uncertain, and competition from newer blockchains like Solana is intensifying.

However, Matt Hougan, Bitwise’s chief investment officer (CIO), believes its fundamental strengths in key sectors such as stablecoins and decentralized finance (DeFi) make it a long-term winner despite these immediate hurdles.

Long-term dominance in key sectors

MarketWatch data shows that while ethereum is holding steady, Solana is up more than 23% year-to-date and bitcoin has seen a 42% increase. However, despite the bleak outlook, Hougan suggests that writing ethereum off could prove to be a mistake.

“It's great to hate ethereum right now,” Hougan said in a ethereum?utm_medium=email&_hsenc=p2ANqtz-9ZwgOgRuydARdrbtqB5ekhB7rzBRW7Mw3gq6AOcRYBAsq0zGHHafozdtkS-kLqmqdEYRPcML1Y82Lnx5Ldm2bzFjmtDfNdh84KOLr4NEzu5hhYioY&_hsmi=325026337&utm_content=325026337&utm_source=hs_email” target=”_blank” rel=”noopener” data-wpel-link=”external”>memorandumHe added: “I bet this will end up looking like nonsense.”

The analyst argues that even with challenges, the second-largest cryptocurrency and the network behind it remain dominant in key blockchain sectors, hosting more than half of all stablecoins and locking up 60% of DeFi assets. For example, BlackRock’s tokenized money market fund and Nike’s .Swoosh platform are powered by ethereum, and future corporate projects are likely to follow.

“ethereum has the most active developers, the most active users, and a market cap that is 5x larger than its closest competitor,” Bitwise’s CIO said in the memo, adding that it is the only programmable blockchain with some regulatory support in the US, along with a growing futures market and a multi-trillion dollar ETF market.

He further stressed that while Solana and other chains are making an impact, people are overlooking ethereum's real-world success, leading him to describe it as “the Microsoft of blockchains.”

A contrarian bet

Hougan believes that as the market approaches the November US election and regulatory clarity improves, the outlook could change. This could lead to a re-evaluation of the cryptocurrency’s long-term potential.

For now, he sees ethereum as a potential contrarian bet, an asset that might be undervalued due to temporary challenges but is positioned to rally in the future. The second-largest digital asset also faces challenges due to potential regulatory pressures tied to the upcoming election, with the SEC scrutinizing its staking system and DeFi ecosystem.

Growing competition from faster and cheaper blockchains like Solana has also made it look outdated and expensive. “In crypto circles, it’s a cool thing to be bullish on Solana and other new chains and bearish on ethereum because it’s older,” the expert noted.

Furthermore, the transition to Layer 2 solutions for scalability has diverted so much volume from ethereum that its revenue has fallen to a four-year low, raising concerns that it may have weakened its own economic model.

ethereum ETF performance has also lagged behind bitcoin, with significant outflows from the Grayscale ethereum Trust (ETHE) dampening investor confidence.

However, Hougan believes the asset’s fundamentals remain strong and none of its current challenges are existential. He therefore sees it as a potential contrarian bet that could rally by the end of the year.

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