Perhaps the most essential and integral piece of financial plumbing in the world of decentralized finance (DeFi), the Ethereum (ETH 3.77%) network is an absolute behemoth among layer-1 networks.
CRYPTO: ETH
Key Data Points
The first project to provide smart contract technology at scale, a significant percentage of all on-chain applications run on Ethereum's robust network, in part due to its longtime standing and existing user base (i.e., network effects), but also as a result of the incredible security the Ethereum network provides relative to other faster and cheaper networks in the market.
With that said, I think it's worth diving into Ethereum's 11.8% weekly decline as of 10:00 a.m. ET on Sunday, and what drove the world's second-largest cryptocurrency toward its lowest levels of the year. I was actually shocked to see that on a year-over-year basis, this decline has now pushed Ethereum into the red on this key metric as well.
The grind continues for Ethereum investors
Source: Getty Images.
With Ethereum more than tripling off of its April lows to a new all-time high just shy of $5,000 per token this past summer, it's fair to say that most long-term bulls on the future of Ethereum may have felt like they were sitting pretty just a few months ago. Long-time bulls on Ethereum, such as Tom Lee, have continued to add to their holdings (with Lee's Bitmine adding another $100 million to its Ethereum treasury this past week, indicative of such bullishness).
That said, it's impossible to segregate Ethereum from the broader macro narrative. On that front, it does appear that precious metals such as gold and silver are taking share (as measured by the total investable dollars from big money players in defensive or uncorrelated assets relative to equities) from digital assets.
Ratcheted-up rhetoric around geopolitics and tariffs has once again driven volatility to spike (with the closely watched VIX surging above 20 again this past week). In bouts of volatility like these, Ethereum has delivered mixed returns in the past.
But given the concerns I highlighted this past week about a potential large-scale poisoning attack shifting investor confidence toward bearishness, as well as recent reports that the Ethereum developer team is now preparing its network for future-state quantum attacks, many are feeling gloomy right now.
I think it will be interesting to see how sentiment shifts throughout this year. My view is that this recent dip (which has now wiped out all of the gains we saw this year up until last week) could revert. The only caveat is that investors will need to see broader improvements in the macro environment for this to take place, and that may be a difficult lift.
