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Zaheer Ebtikar, chief investment officer (CIO) and founder of Split Capital, a hedge fund specializing in liquid token investments, has x.com/SplitCapital/status/1845174023073955904″ target=”_blank” rel=”nofollow”>attributed ethereum's poor performance in recent months is due to strategic mistakes by the ethereum Foundation and structural changes in crypto capital flows. In an analysis shared via this cycle.”
Why is ethereum price lagging behind?
Ebtikar began by emphasizing the importance of understanding capital flows within the crypto market. It identified three main sources of capital flow: retail investors interacting directly through platforms such as Coinbase, Binance and Bybit; private capital from liquid and venture funds; and institutional investors who invest directly through exchange-traded funds (ETFs) and futures. However, he noted that retail investors are “the most difficult to quantify” and “are not fully present in the market today,” so he excludes them from his analysis.
Focusing on private equity, Ebtikar highlighted that in 2021, this segment was the largest capital base, driven by crypto euphoria that attracted over $20 billion in net new inflows. “Fast forward to today, private equity is no longer the largest capital base as ETFs and other traditional vehicles have taken on the role of the largest new net buyer of cryptocurrencies,” he stated. He attributed this decline to a series of bad risk investments and surpluses from previous cycles, which have “left a bad taste in LPs' mouths.”
These venture firms and liquid funds recognized that they could not wait out another cycle and needed to be more proactive. They began taking more “shots at the target” for liquid games, often through private deals involving locked tokens like Solana (SOL), Celestia (TIA), and Toncoin (TON). “These closed deals also represented something more interesting for many companies: there is 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 signing up for the investment”, Ebtikar. explained.
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He noted that investors were aware that it would be increasingly difficult to raise funds for liquid and risky investments. Without the return of retail capital, institutional products became the only viable avenue for an eth bid. Mindshare began to fragment as the three-year mark of the 2021 harvest approached, and products like BlackRock's Spot bitcoin ETF (IBIT) gained legitimacy as a de facto benchmark for cryptocurrencies. Private equity had to make a decision: “Abandon your core portfolio in eth and lower the risk curve or hold your breath for traditional players to start bailing you out.”
This led to the formation of two sides. The first consisted of pre-ETF eth sellers between January and May 2024, who opted out of eth and switched to assets like SOL. The second group, the post-ETF eth sellers from June to September 2024, realized that ETF flows into eth were lackluster and that it would take a lot more for the eth price to gain support. “They understood that ETF flows were lackluster and that it would take a lot more for the eth price to start providing support,” Ebtikar noted.
Turning his attention to institutional capital, Ebtikar noted that when bitcoin spot ETFs like IBIT, FBTC, ARKB, and BITW entered the market, they exceeded expectations. “These products exceeded any realistic goals that investors and experts could have imagined with their success,” he said. He emphasized that bitcoin ETFs have become some of the most successful ETF products in history. “btc went from being a dog in the average portfolio to now the only net new capital funnel in crypto and at a record pace too,” he said.
Despite bitcoin's rise, the rest of the market did not keep pace. Ebtikar questioned why this was the case, noting that crypto-native investors, retail and private equity had long since reduced their bitcoin holdings. Instead, they were “stuck in altcoins and ethereum as the core of their portfolio.” Consequently, when bitcoin received its institutional offering, few in the crypto space benefited from the new wealth effect. “Few in the cryptocurrency world benefited from the new wealth effect,” he commented.
Investors began to reevaluate their portfolios, scrambling to decide their next moves. Historically, crypto capital would move from indexed assets like bitcoin to ethereum and then down the risk curve to altcoins. However, traders speculated about possible flows into ethereum and similar assets, but were “vastly wrong.” The market began to diverge and the dispersion between asset returns intensified. Professional cryptocurrency investors and traders aggressively moved down the risk curve, and funds did the same to generate returns.
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The asset they chose to reduce exposure to was ethereum, the largest asset in their core portfolios. “Slowly but surely, eth began to lose steam against SOL and the like, and a non-trivial percentage of this flow began to move into memecoins,” Ebtikar observed. “eth lost its moat among savvy cryptocurrency investors, the only group of investors historically interested in buying.”
Even with the introduction of eth spot ETFs, institutional capital paid little attention to ethereum. Ebtikar described ethereum's situation as suffering from “middle child syndrome.” He explained: “The asset is not hot among institutional investors, the asset has fallen out of favor in crypto private equity circles, and retail is nowhere to be seen making deals of this size.” He emphasized that ethereum is too big for native capital to support, while other index-linked assets like SOL and large-cap assets like TIA, TAO, and SUI are catching investors' attention.
According to Ebtikar, the only way forward is to expand the universe of potentially interested investors, which can only happen at the institutional level. “The best odds for eth to make a material comeback (barring changes to the trajectory of the core protocol) are for institutional investors to pick up the asset in the coming months,” he suggested. He acknowledged that while ethereum faces significant challenges, it is “the only other asset with an ETF and likely will be for some time.” This unique position offers a potential avenue for recovery.
Ebtikar mentioned several factors that could influence ethereum's future trajectory. He cited the possibility of a Trump presidency, which could bring changes to regulatory frameworks affecting cryptocurrencies. He also noted possible changes to the direction and core focus of the ethereum Foundation, suggesting that strategic changes could reinvigorate investor interest. Furthermore, he highlighted the importance of eth ETF marketing by traditional asset managers to attract institutional capital.
“Given the possibility of a Trump presidency, the change in direction and core focus of the ethereum Foundation, and the commercialization of the eth ETF by traditional asset managers, there are quite a few ways out for the father of smart contracting platforms,” commented Ebtikar. He expressed cautious optimism and stated that not all hope is lost for ethereum.
Looking ahead to 2025, Ebtikar believes it will be a critical year for cryptocurrencies and especially for ethereum. “2025 will be a very interesting year for cryptocurrencies and especially for ethereum, as much of the damage from 2024 can be repaired or deepened further,” he concluded. “Time will tell.”
At press time, eth was trading at $2,534.
Featured image created with DALL.E, chart from TradingView.com
