Summary On-chain data for Ethereum was mixed in November. DAAs grew on the mainnet but declined in the broader ETH ecosystem due largely to usage declines on Base. Solana officially passed Ethereum in full-month fees, but Ethereum remains the giant in the DeFi space, with a 57% share of broader TVL. As ETH continues to act inflationary following Dencun, there is an opportunity cost in holding the asset through an ETF that can't actively stake on-chain. But as far as simple, inexpensive exposure to price changes in ETH goes, ETHA is a solid option. In recent weeks, we've seen explosive rallies in the digital asset market that have taken popular coins to new multi-year highs and in some instances, all-time highs. Bitcoin ( BTC-USD ) came within a couple of hundred dollars of tagging a six-figure coin price. XRP ( XRP-USD ) just hit its highest price since January 2018. Dogecoin ( DOGE-USD ) reached a coin price level not seen since May 2021. Enthusiasm in the market is high. Data by YCharts Yet, Ethereum ( ETH-USD ) still hasn't taken out levels seen earlier this year. In this article, we'll look at how on-chain activity has progressed since October , capital flows over the last month, and assess whether investors should consider the iShares Ethereum Trust ETF ( ETHA ) for ETH exposure. On-Chain Data Following up on what I called a ' quietly positive ' October for the Ethereum ecosystem a month ago, Ethereum and the secondary layers built on top of it continued to develop through November. On-chain usage was a bit mixed, with daily active addresses (or DAAs) declining 12% from 3.2 million in October to 2.8 million in November among the chains shown in the graphic below. Artemis The biggest reason for this decline in ecosystem users was Base - which fell from 1.4 million DAAs in October to 1.1 million in November. Ethereum's main layer actually saw month-over-month growth in DAAs from 366k to 400k, 9% more than October and 25% more than November 2023. Ethereum's MoM DAA trend shows outperformance against the broader public blockchain industry, as aggregate data from Artemis shows daily active addresses falling nearly 5% to 17.8 million over the last 30 days. Where it really counts, though, is the fees: Artemis The good news is Ethereum's monthly fees grew 33.6% over October from $142.2 million to $190 million, a 7-month-high. Perhaps the bad news is Solana ( SOL-USD ) surpassed Ethereum in monthly fees in November. And at 6.7 million DAAs on Solana alone, the smart contract usage growth appears to be happening on alternative chains more than within the Ethereum ecosystem. That said, swapping memecoins through DEX trading isn't the only way a public blockchain can (or should) be utilized. DeFi is still a major component of this industry, and Ethereum continues to be the boss in that category: DefiLlama There is over $128 billion in total value locked via DeFi protocols per data from DefiLlama and 57% of that TVL is on Ethereum. There is a 'switching cost' to moving this DeFi activity to a different chain, and to this point we're just not seeing that happen. In fact, measured in ETH, TVL on Ethereum is up 44% year to date from 13.2 million ETH to 19 million ETH as of December 1st. This is admittedly below the high of the last bull cycle in 2021, but ahead of any TVL peak going back the last two years. Capital Flows In my personal opinion, there is no real way to sugarcoat it; Ethereum's price performance this year has been very disappointing. While Bitcoin has produced a new all-time high 43% higher than the 2021 peak, Ethereum's fresh all-time high over the peak from the last cycle still eludes investors. And there is perhaps a good reason for this; the capital flow story simply hasn't been there for ETH. However, that has seemingly started to change if November is any indication. According to data tracked by CoinShares, capital flows into digital asset investment products capped off an 8th consecutive positive week to close out November. The final week of November was actually the 11th week out of the last 12 that had positive net flow into digital asset investment products. That final week in November was a bit of an outlier, as it was Ethereum rather than Bitcoin that propelled the net flow to positive territory: Asset ($m) Week Flows MTD Flows YTD Flows Bitcoin -$457 $6,226 $33,912 Ethereum $634 $1,427 $2,198 Multi-asset -$16 -$25 $441 Solana -$4 $40 $110 Binance - $0 -$2 Source: CoinShares, Bloomberg, as of 11/30/24 To put that $634 million into proper context for the final week of November, that single week accounted for 29% of the year to date asset flow for Ethereum investment products. It was a huge week and perhaps indicative of a large sentiment shift in ETH heading into December and beyond. Key Risks: ETH Supply & Lack of Staking Ultrasound.money There continues to be a key risk in Ethereum, dating back to the Dencun upgrade earlier this year pertaining to ETH supply. Now that the Layer 2 scaling chains aren't paying as much in fees to the main layer as they previously were pre-Dencun, what had been a deflationary 'ETH burn' dating back to 'The Merge' has flipped back to supply inflation. By itself, this is not a reason to sell ETH or get bearish. Most chain-native smart contract assets happen to be inflationary. But it does mean that staking the asset becomes more important, as investors may seek to combat the supply inflation through new issuance by staking for rewards: 1yr Trend (StakingRewards) Going back the last year, we've seen ETH rewards generally trend down below 4%. The current reward rate of 3.1% is near the 52-week low and has perhaps unsurprisingly come in tandem with a drop in staked ETH from 34.5 million on November 6th to 34.2 million ETH as of December 2nd. The key risk to consider here for investors in the iShares Ethereum Trust ETF would be that the ETH held by the fund is not currently staked. That means that ETHA holders are paying a management fee for the opportunity cost of investing in ETH that doesn't generate a yield. TheBlock Regardless, that opportunity cost from un-staked assets is certainly not unique to ETHA and compared to the other spot ETH ETFs in the US market, investors can do a lot worse than the iShares product. While it isn't the lowest expense ratio at 0.25%, ETHA is certainly competitive with peers and has been far and away the biggest recipient of fee flight asset migration from the Grayscale Ethereum Trust ETF ( ETHE ). Closing Summary I'm still long Ethereum, both directly on-chain and through the ETF wrapper. In my view, sentiment in ETH is poor even though scaling efforts have grown ecosystem usage. The main chain is still absolutely dominant in the DeFi space and significant TVL migration from Ethereum to cheaper networks has yet to happen at scale despite clear user incentives for such switching to occur. To be sure, there are serious risks in both direct ETH ownership and in ETF proxies. Without significant growth in usage or higher gas fees, ETH will likely continue to be inflationary. In that reality, there is an opportunity cost in longing for ETH through ETFs like ETHA. All this said, I don't think the broader rally in the digital asset space is done yet, and I think recent capital flows are indicating it is Ethereum's turn to make a new high.
