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ETHE: Ethereum Is A Contrarian Trade

Summary Ethereum had a positive close to 2024 but is underperforming Bitcoin again through the first half of January 2025. Investment capital in traditional market products has turned negative for Ethereum, a concerning trend not seen with other digital assets. Despite clear problems with the demand for ETH through main layer gas, Ethereum has terrific liquidity and the largest stablecoin supply. Valuation is improving, and sentiment is terrible. I think Ethereum is a contrarian buy. As long as it charges 1.5%, I would not choose ETHE over other options. After what, I think, could be characterized as a positive close to the year for Ethereum USD ( ETH-USD ) in the final quarter of 2024, the market`s second most valuable digital asset by market capitalization is off to a rough start in 2025. Through the first half of January, Ethereum has added 3% while Bitcoin USD ( BTC-USD ) has roared higher by 12%. TrendSpider The ETH/BTC ratio has fallen for 7 of the last 8 quarters and is down through the first half of January as well. Perhaps more concerning is that digital asset investment capital in traditional market products has taken a negative turn that is exclusive to ETH so far. In this article, we`ll look at updated capital flows in the digital asset investment landscape, ETH supply held through the Grayscale Ethereum Trust ETF ( ETHE ), activity in the Ethereum ecosystem, and the improving valuation of the ETH. Investor Demand, Or Lack Thereof? Through the first eight business days of January, there was a clear outlier in the CoinShares digital asset flow table: Digital Asset Flows (CoinShares) Investor demand for ETH has been negative to the start of the year with $274 million flowing out of Ethereum so far in 2025. This is despite positive flows in nearly every other major asset shown in the table above. Negative net flows are also a deviation from the way 2024 ended. During the month of December, $2.3 billion in investment demand found its way to ETH - nearly half of the $4.9 billion in full-year positive net flow for the asset in a single month. When we observe the 2024 investment demand for crypto`s `blue chip` assets, it`s perhaps easy to look at the 8x net flow multiple that BTC had over ETH and draw some unfavorable conclusions about ETH. From a market capitalization standpoint, Bitcoin`s 19.8 million coins have a valuation that is in the $2 trillion area while Ethereum`s market cap is closer to $400 million - thus a 5x valuation multiple in favor of BTC. Flippening? Not any time soon it seems, if ever. However, readers should keep in mind that Bitcoin`s spot ETF came six months before Ethereum`s. The week Ethereum`s spot ETFs launched in the United States, there was $19 billion in January-July net flow into Bitcoin and just $852 million for Ethereum. If we take the difference between the two assets since Ethereum ETFs launched, we get about $19 billion in additional BTC net flow and $4 billion in additional ETH net flow from the time those ETH-themed products came to market. The ETF allocations in the second half of the year are far closer to the 5x multiple BTC currently has over ETH from a market capitalization standpoint. Is there any reason for investors to reasonably expect Ethereum`s out-performance in 2025? Grayscale Fee Migration Bitcoin`s spot ETF products were a smashing success. Ethereum`s were successful as well but to a far lesser nominal degree. However, one of the issues that may have kept the net flow stories in both assets from looking as stellar as they potentially could have last year was the fee flight migration from Grayscale`s high-fee ETFs. Spot ETF AUM (in ETH) (TheBlock) At the spot product launch, Grayscale had 2.92 million ETH held via ETHE and the Grayscale Ethereum Mini Trust ETF ( ETH ). Over 90% of that ETH was held in the higher-expense ETHE product. Unsurprisingly, the ability to redeem ETH from the spot products have resulted in a nearly 30% reduction in supply held via ETHE over the last 6 months. Supply flow into Grayscale`s ETH mini trust has been marginal by comparison and the current market caps of the higher-fee Grayscale products now look like this: $4.8 billion in AUM via ETHE charging 1.5%. $20.3 billion in AUM via the Grayscale Bitcoin Trust ETF ( GBTC ) charging 1.5%. Calculating the ratio here, we see a 4.2x multiple for GBTC AUM over ETHE AUM - indicating that digital asset investors who wish to allocate in line with the market may actually put more redemption pressure from here on ETHE rather than on GBTC. Time will tell there, and it`s unclear how easily investor demand from the other ETFs could soak up that potential supply. To justify a larger share of the broad digital asset market cap compared to Bitcoin, Ethereum would have to start winning back some lost sentiment again from investors/traders in the smart contract market. Ethereum Ecosystem Data ETH L2 Transactions (Token Terminal) As I see it, a major hurdle for Ethereum is still the lack of an organic bid for ETH to pay gas fees. Since the Dencun upgrade last year, Layer 2 scaling networks like Base have observed fantastic growth in key metrics like daily transactions, daily active users, and DEX volume. The chart above shows a handful of those networks with stacked daily transactions. The trend is incredibly positive. Unfortunately, this has not been a value-add to ETH as an asset because the fees paid to L2s are far less than that of mainnet. Ethereum, Monthly Fees (Token Terminal) For the month of December, Ethereum generated $218 million in fees. It was the fourth consecutive monthly increase in fees but a 33% reduction from December 2023. Through the first half of January, Ethereum is pacing about $135 million in fees for the full month. Each of these numbers are well below highs from 2021 and even well below the $607 million fees generated in March 2024. The combined L2 networks from the first chart in this section did about $20 million in fees last month by comparison. On the surface, the bull case for ETH is difficult to find. Sentiment in the market for Ethereum is weak and under-performance versus other coins - Bitcoin specifically - is weighing on Ethereum supporters. The primary layer for the network is losing share in key usage metrics like Daily Active Addresses, transactions, and DEX volume to more scale-able chains like Solana USD ( SOL-USD ). However, there are positives in the on-chain data that, I feel, are going generally unnoticed. First, Ethereum did nearly 4x the settlement volume that Solana did in December: Monthly Settlement (since 2020) (Artemis) The Ethereum ecosystem is so strong in this metric, that even L2 scaling chain Base did more settlement than Solana in November. Ethereum also saw explosive growth in stablecoin supply during the month of December: Stablecoin Supply (Artemis) The chart above shows most of the top 10 blockchains by stablecoin market capitalization. Not only did the stable supply of ETH grow 24% month over month from $83.7 billion to over $104 billion, but Ethereum`s stablecoin supply is larger than the rest of the public blockchains combined. I believe stablecoins are going to play a large part in the future of finance and there are positive indications from both President-elect Donald Trump and his nominees. Bloomberg reported the Trump administration is signaling that crypto will be a `national priority.` Furthermore, and perhaps to the chagrin of Bitcoin-only proponents, US-based digital assets may get priority as strategic assets. Finally, Trump`s pick for Treasury Secretary Scott Bessent has publicly stated there is no need for a central bank digital currency, or CBDC. In my view, this is a massive positive for Ethereum. Without competition from a quasi-government managed digital dollar, Ethereum - and its L2 networks - are best positioned for on-chain settlement as the largest network for both blockchain-based dollars and settlement volume in December. Valuation Normalizing Token Terminal December was a continuation of a valuation trend that may have started in October. After mooning from 64x fees to 455x times fees between March and September last year, Ethereum`s circulating price to annualized fees multiple has been coming back down. During the month of December, that multiple fell to 158x fees. This is certainly not the cheapest Ethereum has been in the last 12 months, but it`s definitely a step in the right direction. Blockchain TVL (billions) MC/TVL Ethereum $68.3 6.1 Solana $9.7 11.1 Tronix USD ( TRX-USD ) $7.3 2.9 Bitcoin $7.0 293.3 Binance Coin USD ( BNB-USD ) $5.8 18.2 Base $3.8 Arbit Coin USD ( ARB-USD ) $3.0 1.2 Sui ( SUI-USD ) $2.0 7.5 Hyperliquid $1.8 Avalanche ( AVAX-USD ) $1.5 11.7 Source: DefiLlama, as of 1/17/25 Looking at the multiples from a market cap to total value locked ratio, we see Ethereum is on the cheaper side compared to other main layer chains. At a 6.1 MC/TVL ratio, ETH is cheaper than Solana, Binance, Sui, and Avalanche. Final Takeaways There are certainly reasons to be cautious about longing Ethereum in 2025. The fee capture from the network has been far less robust than it was before Dencun. This result has helped the broader ecosystem flourish at the expense of ETH`s organic bid. But purely from a valuation standpoint, Ethereum is significantly more attractive than most of its primary peers. And the external setup for digital assets in America appears to be headed in the right direction. Regulatory clarity appears to be both forthcoming and far friendlier than it was under the Biden administration. Ethereum has a very advantageous position as a settlement network in the future of finance. It has the liquidity and the ability to scale through L2 chains that can abstract away fees for broader usage. Despite this setup, sentiment is horrible. Ethereum looks and feels like a contrarian trade if you follow Ethereum advocates on X. While I, personally, wouldn`t pick ETHE as the way to express an Ethereum long bet, I do think ETHE will generate a nice return in 2025 on the back of an underlying asset that is being overly discounted in my eyes. Crypto Briefing

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Polkadot Rollup, Hyperbridge, Extends Initial Relayer Offering After Selling Over 52 Million Tokens

Zurich, Switzerland, January 17th, 2025, Chainwire Hyperbridge Extends Token Offering Deadline, Token Generation Event Set for Q1 2025 Following the successful launch of its mainnet and Gateway Token Bridge, Hyperbridge announces the extension of its Initial Relayer Offering (IRO) deadline to February 28th, 2025. This decision comes in response to overwhelming demand, with over 52 million tokens out of the total 100 million supply already sold. The extension offers prospective participants a limited-time opportunity to join the Hyperbridge network, with early buyers still eligible for bonuses. As Hyperbridge expands its reach, this extension provides a final window for supporters to secure their position within the ecosystem. 50% Bonus Already Claimed: Early participants who joined before the initial deadline secured a 50% token bonus, a testament to Hyperbridge’s commitment to rewarding early adoption. 15% Bonus Available: A limited opportunity remains for participants to receive a 15% bonus on their token purchase. “We’ve been thrilled by the incredible support from our community so far,” said Seun Lanlege, Founder of Polytope Labs. “Selling over 52 million tokens is a major milestone, and with the extension, we’re excited to welcome even more relayers into the Hyperbridge network before our Token Generation Event in Q1.” Hyperbridge’s mainnet launch marks a notable advancement in its journey toward transforming blockchain interoperability. The protocol has integrations with many ecosystems, including Ethereum, Optimism, Arbitrum, Base, BNB Chain, zkVerify, Gnosis, Bifrost, and more. The Gateway Token Bridge is already live, enabling secure, scalable cross-chain token transfers, messaging, and state queries. These integrations position Hyperbridge as a key contributor to the advancement of cross-chain applications. Hyperbridge is set to hold its Token Generation Event in Q1 2025, and participants in the IRO will be among the first to receive their tokens, unlocking opportunities to actively engage with the protocol. With its advanced zk-technology and focus on security, Hyperbridge has already seen rapid adoption, supported by integrations across major blockchain ecosystems. The protocol’s hub model ensures scalability and reliability, attracting developers, DAOs, and DeFi projects looking for robust cross-chain solutions. Regarding utility for the Hyperbridge token, $BRIDGE: a minimal BRIDGE token fee is required for transactions. So transactions such as cross-chain messages, storage queries, and state reads will use the token. Tokens collected as transaction fees are used to fund incentives and rewards for both relayers and block producers. Hence the token is planned to have zero inflation. The token will also be used for governance. For more information, users can visit Hyperbridge ( https://app.hyperbridge.network/sale ) About Hyperbridge Hyperbridge is a cryptoeconomic coprocessor for secure, verifiable interoperability powered by consensus and storage proofs. Hyperbridge is the HTTPS of blockchain interoperability, providing developers with onchain and off-chain SDKs for securely sending cross-chain messages (POST requests) and reading on-chain storage (GET requests). Website , Twitter About Polytope Labs Polytope Labs is a collective of researchers and engineers founded by core developers of Ethereum, Polkadot, and IBC. Focused on addressing fundamental infrastructure problems that continue to hold back the crypto industry, such as interoperability, scalability, and privacy. The team believes that Web3 is the next evolutionary step of the internet, and is fully committed to advancing truly decentralized technologies. Website , Twitter Contact Jonathan Duran Jonathan@distractive.xyz Crypto Briefing