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Over the last six months, Ethereum outperformed Bitcoin having gained 67% in value vs Bitcoin’s modest 20% performance. While Bitcoin is in its own category as digital gold, without the pseudo-scarcity of gold, Ethereum functions as a smart contract workhorse.
From Ethereum’s inception to the transition from proof-of-work to proof-of-stake, the blockchain expands from Bitcoin’s long-term monetary anchor into a programmable economy. Ultimately, any existing financial service could be made into a decentralized application (dApp) – automated, running 24/7, and trustless.
However, the network effect made Bitcoin one of a kind. No other coin can approach its security owing to the network’s proof-of-work and difficulty adjustment. In addition to minimalism, immutability and conservative feature expansion, this makes Bitcoin’s price largely reliant on macro conditions.
The same cannot be said of Ethereum, which has many contenders for the same decentralized finance (DeFi) position alongside design philosophy considerations. In this light, how should potential investors view ETH exposure?
Ethereum’s Network Effect Is Both Substantial and Vulnerable
Just as Bitcoin has its dominance over the entire crypto market at 58%, Ethereum reigns to an even greater extent within DeFi blockchains at 61.3%. According to DefiLlama data, $96.6 billion worth of assets are locked in Ethereum’s smart contracts. This level of activity is now closing in on the peak bull era in early November 2021, at just over $108 billion.
For comparison, the next largest DeFi chain – Solana – has only $11.2 billion total value locked (TVL).
In addition to having a first mover advantage within DeFi, Ethereum accomplished this by serving as an expansion core. Namely, by scaling network bandwidth with a wide range of layer 2 networks such as Coinbase’s Base, Arbitrum, Polygon, Optimism, Unichain and others.
Although they introduced another layer of complexity for the end-user, by having to bridge tokens and switch networks, these scaling solutions effectively negated Ethereum’s congestion issues and volatile transaction fees.
Simultaneously, the same network effect makes Ethereum the top target for hacks and smart contract exploits. According to the H1 2025 Hack3d report from CertiK cybersecurity firm, Ethereum suffered $1.6 billion worth of losses in this period across 175 hacks and vulnerability exploits.
Moreover, the complexity of just navigating through Ethereum’s ecosystem – user error – has resulted in a cumulative loss of $3.43 billion worth of ETH, as the most conservative estimate by researcher Conor Grogan.
It’s safe to say these figures boost confidence in minimalist Bitcoin, but also in slower-paced alternative blockchains like Cardano, which adopted a peer-review vetting mechanism for its roadmap. Ultimately, Ethereum’s roadmap includes both layer 1 scalability through sharding and account abstraction to remove the middleware complexity for end-users.
Ethereum’s Supply Elasticity
Although 120.7 million ETH is in circulating supply, which serves as its total supply, Ethereum doesn’t have a fixed supply like Bitcoin. Instead, to safeguard future growth by incentivizing network validators, Ethereum has an elastic supply.
In a fixed supply model that Bitcoin has, network rewards are cut every four years through a halving mechanism. In that model, Bitcoin’s security funding is offset by BTC price appreciation.
Ethereum scales its network security budget dynamically. Presently, around 35.7 million ETH is staked to secure the proof-of-stake blockchain, which generates more ETH tokens. Yet, this is offset by Ethereum’s token burning mechanism, as programmed scarcity.
Consequently, Ethereum’s inflation rate is roughly the same as Bitcoin’s, at around 0.74% per year, both of which are significantly lower than the Federal Reserve’s ideal inflationary target for the dollar at 2%. Despite its user error and hacking issues, this makes Ethereum a viable DeFi infrastructure layer that combines smart contract versatility with sound money.
Nonetheless, ETH price is still reliant on market cycles.
Ethereum’s Negative Profitability and MVRV Signal
According to TokenTerminal, Ethereum has 2 million active monthly users across thousands of dApps, which maintains the highest level of developer activity in the crypto space. However, much like a company in its initial growth phase, the Ethereum network is not profitable due to repeated token incentives to spur activity.
If we were to liken the Ethereum network to a company, its ETH dynamic supply would be akin to issuing new shares to fund security when the business slows down. Likewise, token-burning would be akin to share buybacks, as the reduction of the total ETH supply.
Ethereum’s core revenue comes from transaction fees (gas), ETH staking rewards and maximal extractable value (MEV), as an “advanced” revenue stream for block producers when they reorder or insert transactions.
These three components shape Ethereum’s actual value, or Market Value to Realized Value ratio (MVRV). Typically, when MVRV is above a ratio of 3.0, this signals the market top, followed by a sell-off. In early August, Ethereum’s MVRV reached 2.0, signaling a few more months of bullishness before the inevitable market correction.
Ethereum Likely to Exceed Its Prior Top
Looking back at the last four years of the Biden admin, it is clear that the crypto space was under heavy assault. This not only came from Gary Gensler’s SEC but also from underhanded de-banking practices within the Federal Reserve system. Consequently, such policies suppressed enthusiasm across the entire crypto ecosystem.
Early into the Trump admin, it has been equally clear there is a departure from this hostile institutional stance. A strong indicator for this is the rising capital inflow into corporate Ether treasuries.
According to Strategic ETH Reserve tracker, there is now 3.6 million ETH, worth around $16.6 billion, across 72 entities. Similar to spot-traded Bitcoin ETFs spurring institutional exposure, the same is likely to happen to ETH.
Potential investors should also consider the recently passed Genius Act, signaling a new era of stablecoins. Ethereum is by far the largest facilitator of diversified stablecoin traffic at a $138 billion market cap, followed by the Tron network at $83 billion, which is dominated almost entirely by USDT.
Combined with Ethereum’s elastic supply, but low inflation rate, and a wide range of DeFi use cases, it is easy to see why ETH price is likely to surpass its previous all-time high of $4,891 in November 2021. According to Fundstrat’s Digital Asset Research, analysts Tom Lee and Sean Farrell forecast $10,000 per ETH by the end of 2025.
Of course, there is also likely to be a major sell-off as the MVRV ratio goes up. Nonetheless, in the crypto-friendlier era, this should only serve as another buy-the-dip opportunity.
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